Homework Answers
An arbitrage opportunity in options means trading the options in market to earn profits with very little or towards zero risk.
In this question, we see an arbitrage opportunity of options involving the puts with strike of $150 and $140.
The trade needed to get arbitrage shall be:
- Long the put on AAPL with strike $150 at 6
- Short the put on AAPL with strike $140 at 10.
For example: if the stock expires at 142. there will be loss on long put of $6 and gain on short put of $10 with $3 dividends. Hence, if price of AAPL closes anywhere, the guaranteed minimum proft from this strategy would be 10-6= $4 in today's premiums
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