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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 was very pleased with your notes and question bank. I especially like the mock exams because it helped to pull everything together.
Martin Rockenfeldt
Learning Outcome Statements
describe and interpret the binomial option valuation model and its component terms;
describe how the value of a European option can be analyzed as the present value of the option's expected payoff at expiration;
CFA® 2025 Level II Curriculum, Volume 5, Module 32.