Your old friend, John Smith, is a forwards and futures trader at Big Bank of America. You look up his

quotes for Ventures Technology. Ventures Tech is trading at $472.91, the monthly risk free rate is

0.25% per month, and Smith is quoting a forward price of $480.08 for a 6 month forward contract.

Ventures Tech is not expected to pay a dividend in the next 6 months.

1. Is there an arbitrage opportunity?

2. What steps should you take to realize the arbitrage profits?

3. What are the arbitrage profits per share of ventures Tech that could be realized today?

Your manager has asked you look into the basic properties of single stock options trading in the US.

The fund is considering investing in options as an alternative to investing the underlying equities. Select

a large cap US stock and find information about the equity options that are being traded on that stock

using Yahoo Finance.

4. Consider all the call options being traded on the stock.

a. How does the option premium change as the strike price increases? Why?

b. Holding the strike price constant, how does the option premium change as the duration

of the option increases? Why?

5. Consider all the put options being traded on the stock.

a. How does the option premium change as the strike price increases? Why?

b. Holding the strike price constant, how does the option premium change as the duration

of the option increases? Why?

Answer rating: 100% (QA)

Lets break down each question Forwards and Futures Trading To check for arbitrage opportunities we c... View the full answer