Question

Assume you create a Butterfly with strike prices of 200, 210 and 220. The current stock price is 211. The price of the options are as follows:

Call X=200: 22;

Call X=210: 16;

Call X=220: 12.

The initial investment being 2 (-1*22+2*16-1*12=2).

1. The breakeven prices for this strategy are:

202 and 222

209 and 213

202 and 218

198 and 218

198 and 222

2. If the price at expiration (S1) is 214, then the % gain/loss from this strategy is:

gain of 800%

gain of 100%

gain of 400%

gain of 300%

gain of 200%

3. The % moves to max loss prices from the price today are:

-4.27% and +4.27%

-5.21% and +4.27%

-4.76% and +3.81%

-3.81% and +5.71%

-4.27% and +3.32%

Answer 1

1.
Upper Breakeven Point = Strike Price of Higher Strike Long Call - Net Premium Paid=220-2=218

Lower Breakeven Point = Strike Price of Lower Strike Long Call + Net Premium Paid=200+2=202

2.
=(MAX(214-200,0)-2*MAX(214-210,0)+MAX(214-220,0))/2-1
=200.0000%

3.
Max Loss Occurs When
a) Price of Underlying <= Strike Price of Lower Strike Long Call
% move=200/211-1=-5.2133%

OR

b) Price of Underlying >= Strike Price of Higher Strike Long Call

% move=220/211-1=4.2654%

-5.21% and +4.27%