Which one of the following represents an arbitrage opportunity?
A) stock price of $18 and strike price of $20
B) call price of $0.40 and put price of $0.40
C) PCP-implied put price of $0.30 and call price of $0.28
D) PCP-implied put price of $0.30 and put market price of $0.31
E) PCP-implied call price of $0.20 and a put market price of $0.22

Question

Quizplus · Accepted Answer

In a perfectly efficient market, the PCP-implied price of an option should always match the market price. Therefore, if the implied put price is $0.30 and the put market price is $0.31, there is an arbitrage opportunity. One could purchase the put option for $0.31 and simultaneously sell short the underlying asset for $0.30, locking in a risk-free profit of $0.01.

Which One of the Following Represents an Arbitrage Opportunity