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Basic Question 5 of 8
If the market price of a European put option is lower than the price suggested by the one-period binomial model, what is the appropriate arbitrage strategy?
B. Buy the put option and short the underlying.
C. Buy the put option and long the underlying.
A. Sell the put option and short the underlying.
B. Buy the put option and short the underlying.
C. Buy the put option and long the underlying.
User Contributed Comments 2
| User | Comment |
|---|---|
| vi2009 | for puts => long or short positions in BOTH instruments not for calls though ... |
| RAMOST | Thanks vi2009 |
I am using your study notes and I know of at least 5 other friends of mine who used it and passed the exam last Dec. Keep up your great work!
Barnes
Learning Outcome Statements
explain how to value a derivative using a one-period binomial model
CFA® 2025 Level I Curriculum, Volume 5, Module 10.