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What steps should you take to realize the arbitrage profits

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Reference no: EM132828483

Your old friend, Alex Mason, is a forwards and futures trader at Goldman Sachs. You look up his quotes for Capital Ventures. Capital Ventures is trading at $472.91, the monthly risk-free rate is 0.25% per month and Mason is quoting a forward price of $480.08 for a 6 month forward contract. Capital Ventures is not expected to pay a dividend in the next 6 months.

1. Is there an arbitrage opportunity?

2. What steps should you take to realize the arbitrage profits?

3. What are the arbitrage profits per share of Capital Ventures that could be realized today?

Your manager has asked you look into the basic properties of single stock options trading in the US.

The firm is considering investing in options as an alternative to investing the underlying equities. Select a large cap US stock and find information about the equity options that are being traded on that stock using Yahoo Finance.

4. Consider all the call options being traded on the stock.

a. How does the option premium change as the strike price increases? Why?

b. Holding the strike price constant, how does the option premium change as the duration of the option increases? Why?

5. Consider all the put options being traded on the stock.

a. How does the option premium change as the strike price increases? Why?

b. Holding the strike price constant, how does the option premium change as the duration of the option increases? Why?

Reference no: EM132828483

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