For two call options on the same underlying asset and same time to maturity, the relationship c(K1) – c(K2) ≤ K2 – K₁, for K1 < K2 must hold. Otherwise, there is an arbitrage opportunity. Given the following option prices: Strike Premium 645.00 63.20 650.00 99.00 655.00 57.50 89.85 660.00 Among the four calls, there is one pair for which the above relationship is not hold and thus, one can make arbitrage. To do so, one should buy option with strike price type your answer... , and sell option with strike price type your answer... The minimum profit is type your answer... and the maximum profit is type your answer...

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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For two call options on the same underlying asset and same time to maturity, the
relationship c(K1) – c(K2) ≤ K2 – K₁, for K1 < K2 must hold. Otherwise, there
is an arbitrage opportunity. Given the following option prices:
Strike
Premium
645.00
63.20
650.00
99.00
655.00
57.50
89.85
660.00
Among the four calls, there is one pair for which the above relationship is not hold and
thus, one can make arbitrage. To do so, one should buy option with strike price
type your answer...
, and sell option with strike price
type your answer...
The minimum profit is type your answer...
and
the maximum profit is type your answer...
Transcribed Image Text:For two call options on the same underlying asset and same time to maturity, the relationship c(K1) – c(K2) ≤ K2 – K₁, for K1 < K2 must hold. Otherwise, there is an arbitrage opportunity. Given the following option prices: Strike Premium 645.00 63.20 650.00 99.00 655.00 57.50 89.85 660.00 Among the four calls, there is one pair for which the above relationship is not hold and thus, one can make arbitrage. To do so, one should buy option with strike price type your answer... , and sell option with strike price type your answer... The minimum profit is type your answer... and the maximum profit is type your answer...
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