Question 21.6: You are an options dealer who deals in non-publicly traded o...
You are an options dealer who deals in non-publicly traded options. One of your clients wants to purchase a one-year European call option on HAL Computer Systems stock with a strike price of $20. Another dealer is willing to write a one-year European put option on HAL stock with a strike price of $20, and sell you the put option for a price of $2.50 per share. If HAL pays no dividends and is currently trading for $18 per share, and if the risk-free interest rate is 6%, what is the lowest price you can charge for the call option and still guarantee yourself a profit?
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