If the observed put option premium is less than what is suggested by the put-call parity equation, astute arbitrageurs could make a profit by ____ the put option, ____ the call option, and ____ the underlying currency.
A) selling; buying; buying
B) buying; selling; buying
C) selling; buying; selling
D) buying; buying; buying

Question

Quizplus · Accepted Answer

If the put option is underpriced, arbitrageurs can buy the put, sell the call, and buy the underlying currency to exploit the mispricing and achieve risk-free profit according to the put-call parity.

If the Observed Put Option Premium Is Less Than What