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# 1. What is your risk-free arbitrage profit available if a six-month option pair has a strike price of \$150, a spot price of \$147, a call premium of

1.    What is your risk-free arbitrage profit available if a six-month option pair has a strike price of \$150, a spot price of \$147, a call premium of \$10, a put premium of \$11, and the risk-free rate is 6%?

2.    What should you do if you come across a 2-year option pair with a strike price of \$100, a spot price of \$100, a call premium of \$22, a put premium of \$15, and the risk-free rate is 5%?

3.    What option strategy would be best if you believe there is a good chance for either large gains or large losses in the underlying stock over the next 6 months? Justify your answer.

4.    Consider the following: S0 = 100; X = 110; rf = 10%; The two possibilities for ST are 130 and 80. What is the hedge ratio of a put option?

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