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Options strategy quiz (challenge)

You have

100 call, premium 16
110 call, premium 10
110 put, premium 5
100 put, premium 2

All options expire in 6 months and the 6 months discount factor is 0.95. What's the best strategy you can implement? Show payoff calculations.

Buy a box spread.

cost today is 16-10+5-2 = 9
The cost should be ( Xh-Xl) X df= (110-100) X.95 = 9.5

Box spread in market is underprices. buy it and make a riskless profit of 0.5 cents

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