An arbitrage investor shorts a stock at $76, longs a $75 strike call at $1.50, and shorts a $75 strike put at $0.80. What is the arbitrage profit on the strategy, per share?

Question

Quizplus · Accepted Answer

The investor receives $76 from shorting the stock, pays $1.50 for the call, and receives $0.80 for the put, resulting in a net cash inflow of $76 - $1.50 + $0.80 = $75.30. The stock is covered by the call and put at $75, so the arbitrage profit is $75.30 - $75 = $0.30 per share.

An Arbitrage Investor Shorts a Stock at $76, Longs a $75