The stock of the pharmaceutical company Pills Galore is trading at $103 The European calls and puts with strike price $100 and maturity in one month trade at $5 60 and $2 20, respectively In the next three weeks the FDA will announce its decision about an important new drug the company would like t...

Let us assume r 0 for simplicity One way of tackling this is to c ...

The stock of the pharmaceutical company Pills Galore is trading at $103. The European calls and puts

Question:

The stock of the pharmaceutical company "Pills Galore" is trading at $103. The European calls and puts with $100 and in one month trade at $5.60 and $2.20, respectively. In the next three weeks the FDA will announce its decision about an important new drug the company would like to commercialize. You estimate that if the decision is positive the stock will jump to above $110, and if the decision is negative it will drop below $95. Is it possible to construct a strategy that will yield a profit if your estimates are correct? Explain.
Strike Price
In finance, the strike price of an option is the fixed price at which the owner of the option can buy, or sell, the underlying security or commodity. Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...