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A trader buys a European call option and sells (short) a European put option. The options...

A trader buys a European call option and sells (short) a European put option. The options have the same underlying asset, strike price, and maturity. Describe the trader’s position.            The trader monitors the market continuously and finds at one point that the call is significantly overpriced relative to fair value.
What strategy is available for the trader to lock in a profit at current prices?

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Answer to Q#1 (First question in the list): It is given that a trader buys a European call option and sells (short) a European put option. The options have the same underlying asset, strike price, and maturity. It means that the trader has a long European call option with strike price K and a short European put option with strike price K. If it is assumed that the price of the underlying asset at the maturity of the option is S, the call option shall be exercised by the investor when S> K, resulting the put option expires worthless; the put option shall be exercised by the investor when S < K, resulting the call option expires worthless. It is clear from the above discussion that the cost to the investor is equal to K - S (K minus S). In other words, as for as the investor is concerned, the payoff is S - K (S minus K), the negative amount, resulting payoff of S - K in all cases from the forward contract. It can be concluded that the traders position is equivalent to a forward contract with delivery price K as discussed above

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