Question

Three put options on a stock have the same expiration date and strike prices of $50, $60, and $70. The market prices are $3, $5, and $9, respectively. Harry buys the $50 put, buys the $70 put and sells two of the $60 puts. Harry's strategy potentially makes money (i.e. positive profit) in which of the following price ranges?

		$70 to $80
		$85 to $95
		$40 to $50
		$55 to $65

Answer 1

	Profit/(loss) on 50 put	Profit/(loss) on 60 put	Profit/(loss) on 70 put	Total
Number	1	2	1
Buy/Sale	Buy	sale	Buy
Premium	3	5	9
Price range
40	7	-30	21	-2
45	2	-20	16	-2
50	-3	-10	11	-2
55	-3	0	6	3
60	-3	10	1	8
65	-3	10	-4	3
70	-3	10	-9	-2
75	-3	10	-9	-2
80	-3	10	-9	-2
85	-3	10	-9	-2
90	-3	10	-9	-2
95	-3	10	-9	-2
Therefore answer = $55 to $65