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Given the following data as of the close of trading on 10/26/18: Quest Diagnostics (DGX): 91.47 T-bill: Asked 2.28, Days to Maturity 84 Options on
Given the following data as of the close of trading on 10/26/18:
Quest Diagnostics (DGX): 91.47
T-bill: Asked 2.28, Days to Maturity 84
Options on DGX: expire January 18, 2019
c | X | p |
23.7 | 70 | 0.35 |
17.5 | 75 | 0.55 |
12.9 | 80 | 1 |
8.7 | 85 | 1.95 |
5.2 | 90 | 3.4 |
2.55 | 95 | 6.1 |
1.1 | 100 | 9.7 |
0.45 | 105 | 14.2 |
Imagine now that the call option struck at $80 trades at a premium of $11.00 (instead of $12.90). Show that you can earn an arbitrage profit from buying the option and exercising it immediately.
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