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Suppose that the table below presents prices of European options and that the underlying stock does not pay dividends. Open an arbitrage profit making Calendar
Suppose that the table below presents prices of European options and that the underlying stock does not pay dividends. Open an arbitrage profit making Calendar spread with the K=30, APR and JUL puts. Using a table of cash flows and P/L at expiration, demonstrate that this strategy is indeed an arbitrage profit making strategy.
S K Call Call Call Put Put Put MAR APR JUL MAR APR JUL 29.50 25.00 4.88 5.30 7.29 44 .75 1.85 29.50 3.63 1.94 29.50 2.44 6.29 1.00 2.00 3.50 3.00 27.50 2.63 301.56 1.56 32.50 .53 35 .31 2.75 29.50 1.83 4.50 29.50 .81 1.33 5.75 6.25 7.38 .50 - 9.00 29.50 29.50 37.50 40 .08 31 1.25 10.50 10.87 11.06
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