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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?

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
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I am happy to say that I passed! Your study notes certainly helped prepare me for what was the most difficult exam I had ever taken.
Andrea Schildbach

Andrea Schildbach

Learning Outcome Statements

explain how to value a derivative using a one-period binomial model

CFA® 2025 Level I Curriculum, Volume 5, Module 10.