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Consider two European options written on the same stock which is currently selling for $100 per share. The table below reports the strike prices, market
Consider two European options written on the same stock which is currently selling for $100 per share. The table below reports the strike prices, market prices, and the time to maturity for each option. Assume that the transaction cost of buying and selling either option is zero. Finally, assume that the risk-free rate is equal to 0%. Option Strike Market Time to Price Price Maturity $100 $5.25 1 year Call Option Put Option $100 $3.75 1 year Which of the following claims regarding the values of these options is correct? The call option is overvalued while the put option is undervalued. It is impossible to determine anything about the relative value of the two options. Both options are undervalued. Both options are overvalued. The call option is undervalued while the put option is overvalued
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