Is this option correctly priced?
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Mr. Nash holds an American put option on Delta Triangle, a non-dividend-paying stock. The strike price of the put is $40, and Delta Triangle's stock is currently selling for $35 per share. The current market price of the put is $4.50. Is this option correctly priced? If not, should Mr. Nash buy or sell the option in order to take advantage of the mispricing?
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Solution Summary
Is this option correctly priced? If not, should Mr. Nash buy or sell the option in order to take advantage of the mispricing?
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Put option allows the holder of the option to sell the underlying stock at the strike price, no matter what the market price is.
The option in this case is not correctly priced in the ...
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