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. 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

Answer #1

Answer = A) 1 and -1

Explanation:

A butterfly spread is created by buying the $55 put, buying the $65 put and selling two of the $60 puts. This costs 3+8 -. 2×5 =$1 initially.the following table shows the profit and loss from strategy.

Stock price | payoff | profit |

S_{T} >= 65 |
0 | -1 |

60<=S_{T}<65 |
65-S_{T} |
64- S_{T} |

55<=S_{T}<60 |
S_{T} -55 |
S_{T} - 56 |

S_{T} <55 |
0 | -1 |

The butterfly spread will lead to a loss when the final stock price is greater than $64 or less $56

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 $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...

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 $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

Set-up for all parts: An investment strategy involves four stock
options with the same expiration date but different strike prices.
An example is the following: (i) write a call option with strike
price 60, (ii) buy a call option with strike price 55, (iii) buy a
put option with strike price 45, and (iv) write a put option with
strike price 40.
OPTION STRATEGY (PART 1)
Using the table below, express the total
payoffs of this strategy in terms of...

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.

Options on XYZ Inc.
Expiration Strike Call Put
September 25,
2020 60 3.40 1.20
September 25,
2020 65 2.25 2.56
September 25,
2020 70 1.15 3.67
Use the data for XYZ Inc. to calculate the payoff and the profit
for investments in each of the following September 25, 2020
expiration options, assuming that the stock price on the expiration
date is $ 63. SHOW YOUR WORK!!
Call option, X=60
Put option, X=65
Call option, X=65
Put option, X=70

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. ...

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.

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