Question
Option Payoffs. Suppose that you wish to make a bet on Sofi Technologies (SOFI) as follows. You will (a) buy two calls on SOFI
Option Payoffs. Suppose that you wish to make a bet on Sofi Technologies (SOFI) as follows. You will (a) buy two calls on SOFI struck at $15 expiring on April 14, 2022, (b) sell six calls on SOFI struck at $25 expiring on April 14, 2022, (c) buy four calls on SOFI struck at $30 expiring on April 14, 2022, SOFI is currently trading at $13.27. For the purpose of this problem, assume the calls are European (in fact, standard single name options are American) and assume you can buy a call on one share (in fact, call options contracts are options on 100 shares). Prices of the calls are given below: (10 points) Suppose now that the calls prices in the market (to go long or short) are given below. Show that there is an arbitrage opportunity. Solution: Strike Call Price 15 $3 25 $2 30 $1
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