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January 24th, 2013, 02:43 PM  #1 
Newbie Joined: Jan 2013 Posts: 3 Thanks: 0  problem of options, help me!!
i have a problem of options and i have no idea, please help me, is this: C(K) is the price of a European vanilla call option with the execution (strike) price K. It is known that C(80) = 10, C(110) = 8, C(120) = 7. Does it exist here an arbitrage possibility? If yes, then propose a strategy and draw the relevant payoff profile. thank u! 
January 24th, 2013, 06:10 PM  #2 
Senior Member Joined: Dec 2012 Posts: 148 Thanks: 0  Re: problem of options, help me!!
i will not buy vanilla, anymore.... 
January 25th, 2013, 01:06 AM  #3 
Newbie Joined: Jan 2013 Posts: 3 Thanks: 0  Re: problem of options, help me!!
can you explain me this, please?

September 9th, 2013, 07:45 AM  #4 
Newbie Joined: Sep 2013 Posts: 9 Thanks: 0  Re: problem of options, help me!!
Yes there is: Buy 1 call80 for USD 10 Sell 3 call110 for USD 24 Buy 2 Call120 for USD 14 + ======================== 10+2414=0 investment Payoff: Below 80 = 0 Between 80 and 110 ==> 1 point per point with max profit 30 when expiration on 110 (1 call80 and call100 and call120 worthless) Between 110 and 120 the profit of 30 will reduce with 2 points each point (3 calls110 short and 1 call80 long) where at 120 your earlier profit of 30 is reduced to 10 Above 120 you fix your profit at 10 by selling 2 Calls120 So free potential profit ===> any size 

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