My Math Forum problem of options, help me!!

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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+24-14=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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