If a call is overvalued, put-call parity suggests that the investor should
A)sell the call and the stock and buy the put and the bond
B)sell the call and the bond and buy the put and the stock
C)sell the bond and the put and buy the stock and the call
D)sell the stock and the put and buy the call and the bond

Question

Quizplus · Accepted Answer

Put-call parity implies that if a call is overvalued, an arbitrage opportunity exists by selling the call and the bond while buying the put and the stock to exploit the mispricing.

If a Call Is Overvalued, Put-Call Parity Suggests That the Investor