A stock currently trades at $110. June call options on the stock with a strike price of $105 are priced at $4. Calculate the arbitrage profit that you can earn.
A) $0
B) $1
C) $5
D) $4
E) $9

Question

Quizplus · Accepted Answer

The arbitrage profit can be calculated by subtracting the cost of the call option from the difference between the stock's current price and the strike price. Here, the stock's current price is $110, and the strike price is $105, so the difference is $5. The cost of the call option is $4, so the arbitrage profit is $5 - $4 = $1.

A Stock Currently Trades at $110