Question
The common stock of Intuitive Surgical (ticker symbol: ISRG) has been trading in a narrow range around $580 per share for a while, and you
The common stock of Intuitive Surgical (ticker symbol: ISRG) has been trading in a narrow range around $580 per share for a while, and you believe that it is still not going to make a large move up or down over the next months. You are interested in acting on this conviction by trading options on ISRG. The market maker quotes the price for a put option that expires four months from today with a strike price of $580 at $38.00. (The stock pays no dividends.) If the risk-free interest rate is 1.7% per year, what must be the price of a four-month call option on ISRG stock at a strike price of $580? Round your answer to the nearest cent. (Hint: Use put-call parity.)
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