Establishing long protective put position

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Reference no: EM131939940

Ninzatols Case

Ninzatols’ stock is currently priced at $35, while a European-style put option with a strike price of $36 is trading at $4.31 and a European-style call option with the same strike price is trading at $4.15. Both options have 6 months remaining until expiration. The risk-free rate is currently 4 percent.

Ninzatol Case: In the case of the options on Ninzatols’ stock, by establishing a long protective put position, one could:

A. not earn an arbitrage profit because he should short the protective put position.

B. earn an arbitrage profit of $0.48 per share when simultaneously purchasing the call and borrowing the remaining funds needed for the position at the risk-free rate.

C. earn an arbitrage profit of $0.14 per share when simultaneously selling the call and borrowing the remaining funds needed for the position at the risk-free rate.

D. earn an arbitrage profit of $0.14 per share when simultaneously selling the call and lending at the risk-free rate.

Reference no: EM131939940

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