You are choosing between buying a certain security forward or using the option market for a similar effect (that is, to have the same payoff pattern).

Suppose that at an exercise price equal to the current FORWARD (note: this is a wording change)price of that security, the premium of a put on that stock is $2 per contract; the premium on the call is $2 per contract. Assume there are negligible transactions costs. Which appears to be the better strategy, Using the options market or the forward market? Explain.

Answer rating: 100% (QA)

Given the equal premiums for the put and call the optio... View the full answer