Question

Su pose a stock is currently trading to $61.00, a d in one period will either go up by 22% r fall by 11 the option actualy sod in the market tor $8.00. Descrnbe a trading strategy that yields aroitrage protits. It eone period sk ree rate s 31% s the price o a European DJ cp that expires in one period and has an exer se price of $61.007 Suppose The price of the one year put option is .Rcund to the nearest oent.) The trading strategy that yields arbitrage prohts would be: (Select the bes: cho ce below. O A. The artitrage trading opporturnity will invclve borrowing at therisk-free rate to buy the opt on and buy the replicating portiolio. B. The arbitrage trading opportunity ill involve seling (short) the cption and buying the replicating portroio. O C. The artitrage trading opportunity will involve buying the cption and selling tshort) the replicating portoio O D. The artitrage trading opporturnity will involve selling (short) the option and selling (short) the replicating portfolio