In their paper, Goncalves-Pinto et al. (2019) use the option-implied stock price derived from put-call parity to analyse stock return predictability identified by option prices.

They argue that when transaction costs are considered, put-call parity for European options becomes a set of inequalities:

SASKcBID+KerTpASK(1)cASKKerT+pBIDSBID(2)

1. (a)Suppose that (1) is not satisfied. How would you arbitrage this? Include a cash flow table in your answer.
2. (b)Suppose that the option-implied value is above the price at which the stock is currently trading. On average, this stock will earn a positive return in the near future. What are the two potential explanations that the literature has put forward for this phenomenon?