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Possible trading strategy to take advantage

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A 3-month European put option on a non-dividend-paying stock is currently selling for $3.50. The stock price is $47.0, the strike price is $51, and the risk-free interest rate is 6% p.a (continuous compounding). Analyze the situation to answer the following question:

If there is no arbitrage opportunity in above case, what range of put option price will trigger an arbitrage opportunity? If there is an arbitrage opportunity in the above case, please provide one possible trading strategy to take advantage of this opportunity and show your trading results.

Reference no: EM132673485

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