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The following prices are observed in the market for an option: (all options are on the same underlying with same maturity time)

Stock trades at S0 = 100

A straddle with K=100 trades at 7.9

A strip with K=100 trades at 12.1

A strap with K=100 trades at 11.6

A strangle with K1=95 and K2=105 trades at 5.0

A butterfly spread with K1=95, K=100 and K2=105 trades at 2.1

Describe a risk-free strategy to make money in this market (only trading the above instruments)

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M941498

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