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. 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 - S

C) 65 - S

D) S - 55

Answer #1

**Calculation of Butterfly payoff at different spot prices
:**

**On long put we need to pay the premium for purchasing the option.****On short put we are going to receive the premium for selling the option.**

Spot Price |
||||

S.No. |
Particulars |
55 |
60 |
65 |

a. | Premium paid for long put @ 55 | -3 | -3 | -3 |

b. | Premium received for shorting 2 puts @ 60 (2*5) | 10 | 10 | 10 |

c. | Premium paid for long put @ 65 | -8 | -8 | -8 |

d. | Value for long put @ 55 on expiry | 0 | 0 | 0 |

e. | Value for shorting 2 puts @ 60 on expiry | -10 | 0 | 0 |

f. | Value for long put @ 65 on expiry | 10 | 5 | 0 |

g. |
Pay Off |
-1 |
4 |
-1 |

So, when the spot will be at $55 or less it results into a loss; similarly when it is at $65 or more it results into a loss. It means the butterfly pays between $56-$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 $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

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

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.

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...

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. ...

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

Suppose you are given the following prices for the options on
ABC stock:
Strike (in
$)
call
put
15.0
1.6
2.0
17.5
1.2
2.5
20.0
0.9
3.2
Suppose you take the following position: long one call with
strike 15.0, short two calls with strike 17.5, and long one call
with strike 20.0. Please draw the payoff at maturity.
What would be the total gain (loss) on the above position if
the stock price at maturity turned out to be...

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