Which of the Following Enables an Arbitrage Profit to Be

question 16

Multiple Choice

Which of the following enables an arbitrage profit to be made (excluding transaction costs) from a call option if the market price of the underlying share is $5 50,the price of the call is $1 50,and the exercise price is $3 80?

• A)Buy the call option,exercise it and sell the underlying share.
• B)Buy a put option,exercise it and buy the underlying share.
• C)Buy a call option and hold onto it until expiry.
• D)Sell a put option now and realise the profit.

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Definitions:

Principles

Fundamental truths or propositions that serve as the foundation for a system of belief, behavior, or reasoning.

Agency Law

The legal framework that regulates the relationship between agents who are authorized to act on behalf of principals, and the principals themselves, establishing duties and rights.

Sale Of Goods

The transaction between a buyer and a seller in which the ownership of physical products is transferred from the seller to the buyer for a price.

Capacity To Contract

The legal ability of a party to enter into binding contracts, typically requiring legal age and mental competency.