Consider the IBM call and put options in Problem 3.

IBM paid a dividend on November 8th, 2018, and was not scheduled to pay another dividend until February 2019. Ignoring the negligible interest you might earn on T-bills over the remaining few days’ life of the options, show that there is no arbitrage opportunity using put-call parity for the November options with a $115 strike price. Specifically:

a. What is your profit/loss if you buy a call and T-bills, and sell IBM stock and a put option?

b. What is your profit/loss if you buy IBM stock and a put option, and sell a call and T-bills?

c. Explain why your answers to

(a) and

(b) are not both zero.

d. Do the same calculation for the December options with a strike price of $125. What do you find? How can you explain this?