Question

Three put options on a stock have the same expiration date and strike prices of $55, $60, and $65. The market prices are $3, $5, and $8, respectively. Alice buys the $55 put, buys the $65 put and sells two of the $60 puts. For what range of stock prices would this trade lead to a loss?

greater than $64 or less than $55. |
||

greater than $64 or less than $56. |
||

greater than $65 or less than $56. |
||

greater than $65 or less than $55. |

Answer #1

The correct option is the last one" Greater than 65 or less than 55.

The maximum profit will be if the stock price remains stationary. If the stock price moves above 65, then all option expires as they are put option and gains in value when stock price falls. As as all option expires, the initial outflow is the maximum loss.

As price of stock falls below 55, them all options activated and two short put options will eat up the profit of two long put options.

Three put options on a stock have the same expiration date and
strike prices of $55, $60, and $65. The market prices are $3, $5,
and $8, respectively. A butterfly spread is synthesized by going
long the put with strike $55, shorting two puts with strike $60 and
going long the put with strike $65. If at maturity the
price of the stock is such that , then the payoff of the
butterfly is given by:
A) S - 56
B) 64...

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. Alice
buys the $50 put, buys the $70 put and sells two of the $60 puts.
What is the maximum loss that Alice can face?
$2
$1
$3
Infinity

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. Lou buys the $50 put, buys the $70 put and
sells two of the $60 puts. Lou's strategy potentially makes money
(i.e. positive profit) in which of the following price ranges?
$40 to $50
$55 to $65
$85 to $95
$70 to $80

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

Three put options on a stock have the same expiration date and
strike prices of $55, $60, and $65. The market prices are $3, $5,
and $8, respectively. What is the profit of a butterfly strategy if
S=57 and S=67 respectively.
A. 1 and -1
B. -1 and -1
C. 1 and 1
D. -1 and 1

An investor writes a put option with exercise (strike) price of
$80 and buys a put with exercise price of $65. The puts sell for $8
and $3 respectively. If the options are on the same stock with the
same expiration date,
i. Draw the payoff and profit/loss diagrams for the above
strategy at expiration date of options
ii. Calculate the breakeven point for this strategy and discuss
whether the investor is bullish or bearish on the underlying
stock.

Suppose that put options on a stock with strike prices $33 and
$40 cost $2 and $5, respectively.
a What are the breakeven points?
b. At what range of future stock prices will the spread make
profit and loss.

Both a call and a put currently are traded on stock Xue; both
have strike prices of $50 and maturities of 6 months.
What will be the profit/loss to an investor who buys one
call contract at $3 a share? How about for the person who
buys one put contract for $6.50 a share? [Hint:
profit= value of the option at expiration- initial cost]
Scenario
Call option: Profit/Loss
Put option: Profit/Loss
$40
$45
$50
$55
$60

The following prices are available for call and put options on a
stock priced at $60. The risk-free rate is 4 percent and the
volatility is 0.35. The March options have 90 days remaining and
the June options have 180 days remaining.
Calls
Puts
Strike
March
June
March
June
55
7.2
8.4
1.7
2.9
60
2.5
3.7
3.2
4.8
65
1.8
2.4
6.4
7.5
For questions 19 through 23, consider a bull money spread using
the March 55/60 calls.
19. ...

The strike price for a European call and put option is $56 and
the expiration date for the call and the put is in 9 months. Assume
the call sells for $6, while the put sells for $7. The price of the
stock underlying the call and the put is $55 and the risk free rate
is 3% per annum based on continuous compounding. Identify any
arbitrage opportunity and explain what the trader should do to
capitalize on that opportunity....

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