A european call option and a european put option on a stock


A European call option and a European put option on a stock both have a strike price of $45 and expire in 6 months. Currently, the call price is $10 and the put price is $5 in the market. The risk-free rate is 2% per annum, and the current stock price is $50. Identify the arbitrage opportunity open to the trader. All the interest rates are with continuous compounding.

a) Buy call, sell put, sell stock

b) Buy call, sell put, buy stock

c) Sell call, buy put, buy stock

d) Sell call, buy put, sell stock

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Financial Management: A european call option and a european put option on a stock
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