Alibaba is currently trading at 114.97 a share and you don’t expect its price to move...

Alibaba is currently trading at 114.97 a share and you don’t expect its price to move much in the next 31 days. Alibaba’s 115 at-the-money calls are quoted as follows:

Bid Ask Bid Ask

115 8-day 1.51 1.60 115 24-day 3.40 3.50

115 17-day 1.98 2.07 115 31-day 3.65 3.80

Is there a reasonably safe arbitrage opportunity for profit here? Please explain your strategy and compute the gain or loss if, in 8 days, Alibaba (1) increases to 120, (2) remains unchanged, or (3) drops significantly.

Expert Solution

Yes, there is an oppurtunity for arbitrage gain is as follows:

jeff jeffy answered 2 years ago

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