Question: An analyst has come across one period call option with an exercise price of Sh. 25. The risk free rates 7% and the current stock

An analyst has come across one period call option with an exercise price of Sh. 25. The risk free rates 7% and the current stock value is Sh. 25, and the size of the up move is 1.4. Suppose the option is also trading at Sh. 6.5 and the analyst trades 100 options.

Required:

Determine the appropriate arbitrage strategy.

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