Question: Consider two American call options on the same stock with the same strike price of $40. One option has a maturity of 1 month and

Consider two American call options on the same stock with the same strike price of $40. One option has a maturity of 1 month and the other has a maturity of 3 months. The 1-month option is sold at $4.50 and the 3-month option is sold at $4.25. What should an arbitrager do to profit?

a. Buy the 1-month option and sell the 3-month option

b. Buy both options

c. Sell the 1- month option and buy the 3-month option

d. Sell both options

e. Do nothing because there is no obvious arbitrage opportunity

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