Question
Jason has determined that a call option is overpriced and wants to take advantage of the arbitrage opportunity. He has determined that the value of
Jason has determined that a call option is overpriced and wants to take advantage of the arbitrage opportunity. He has determined that the value of a stock in up and down periods is $360 (S+) and $300 (S), respectively, and the value of a call on the stock in up and down periods is $20 and $0, respectively. In order to take advantage of the arbitrage opportunity, he should most likely:
A)Sell the option and sell 3 shares of stock
B)Sell the option and buy 3 shares of the stock.
C)Buy the option and buy 3 shares of the stock.
D)Buy the option and buy 1 share of the stock.
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