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QUESTION 13 Suppose that the fair price of a put option is $1.00 whereas its observed (i.e., market traded) price is considerably higher at $1.50.
QUESTION 13 Suppose that the fair price of a put option is $1.00 whereas its observed (i.e., market traded) price is considerably higher at $1.50. Obviously, this presents an arbitrage opportunity. Select the best practical answer from the followings to demonstrate how you could arbitrage from the situation. Short the put at $1.50 and then, buy the same put at $1.00 Short the put at $1.50 and at the same time, sell a call (assuming it is priced fairly), buy a stock and borrow from the bank Short the put at $1.50 and at the same time, buy a call (assuming it is priced fairly), short-sell a stock and invest in the bank O Short the put at $1.50 and at the same time, short a call (assuming it is priced fairly), short-sell a stock and invest in the bank
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