You are given the following regarding the stock of Iowa Actuarial Association (IAA):

(i) The stock is currently selling for $100.

(ii) u = 1.1, where u is one plus the percentage change in the stock price per period if the price goes up.

(iii) d = 0.9, where d is one plus the percentage change in the stock price per period if the price goes down.

(iv) The stock pays no dividends.

The effective annual risk-free interest rate is 2%.

While reading the Well Street Journal, Peter notices that a two-year at-the-money European call written on the stock of IAA is selling for $7.5. Peter wonders whether this call is fairly priced. He uses the binomial option pricing model to determine if an arbitrage opportunity exists.

Construct the trading strategies for Peter to exploit the arbitrage opportunity (if one exists).