Which one of the following represents an arbitrage opportunity?
A)stock price of $18 and strike price of $20
B)call price of $.40 and put price of $.40
C)PCP-implied put price of $.30 and call price of $.28
D)PCP-implied put price of $.30 and put market price of $.31
E)PCP-implied call price of $.20 and a put market price of $.22

Question

Quizplus · Accepted Answer

The PCP-implied put price of $.30 and put market price of $.31 indicates a mispricing in the market. The actual market price is higher than the price suggested by the put-call parity formula. This can be exploited by selling the overpriced put option and buying the corresponding call option and stock, thereby locking in a risk-free profit. This is an arbitrage opportunity.

Which One of the Following Represents an Arbitrage Opportunity