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Choose a stock (on Yahoo Finance) that does not pay a dividend and that has traded options. Find a pair of options (put and call)
Choose a stock (on Yahoo Finance) that does not pay a dividend and that has traded options.
Find a pair of options (put and call) with the same expiration and exercise price for the stock (using prices on the day you do the analysis).
(a) Using annual rf = 1% and continuous compounding, evaluate the midpoint of the bid/ask put and call prices under put-call parity using the current stock price. (i.e., how close do the prices track put/call parity?)
(b) Describe in detail a strategy to earn arbitrage profits on the mispricing in 4(a).
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