Oil is currently trading at $100. You want to buy oil and store it for 1 year
Fantastic news! We've Found the answer you've been seeking!
Question:
a) Describe how you can construct a synthetic long oil position (ignore the storage cost) using a Call with K = 90, a Put with K = 90, and the risk free asset.
b) Now assume the 1-year storage cost is $1, payable at t = 0. Suppose the price of a K = 90 Put is $20.
What is the highest value of a K = 90 Call such that there is no arbitrage?
c) Suppose the price of the call were $0.10 greater than your answer to part. Describe how you would construct an arbitrage strategy?
Related Book For
Fundamentals of Investing
ISBN: 978-0133075359
12th edition
Authors: Scott B. Smart, Lawrence J. Gitman, Michael D. Joehnk
Posted Date: