Question

Call options are available with strike prices of $15, $17 ½ and $20 at prices of $4, $2, and $0.5. Consider a butterfly spread.

A. What are the breakeven stock prices for this trade?

B. What are the stock prices that make this a profitable trade?

Answer #1

Strike Price | 15 |
17.5 |
20 |

Call Price |
4 |
2 | 0.5 |

Butterfly spread:

Buy one $15 strike call option (Pay $4)

Sell two $17.5 strike call option (Receive 2 * 2 = $4)

Buy one $20 strike call option (Pay $0.5)

Net premium paid = 4 - 4 + 0.5 = $0.5

A. The upper breakeven price = Upper strike - Net premium paid

The upper breakeven price = 20 - 0.5 =
**$19.5**

The lower breakeven price = Lower strike + Net premium paid

The lower breakeven price = 15 + 0.5 =
**$15.5**

B. The stock prices that make this a profitable trade are any price above $15.5 and below $19.5

Example: $16, $16.5, $17, $19.45

Call options are available with strike prices of $15, $17 ½ and
$20 at prices of $4, $2, and $0.5. Consider a butterfly spread.
A. What are the breakeven stock prices for this trade?
B. What are the stock prices that make this a
profitable trade?

3. Call options are available with strike prices of $15, $17 ½
and $20 at prices of $4, $2, and $0.5. Consider a butterfly spread.
(BUY X1, SELL 2X2 and BUY X3 where X2=(X1 + X3)/2 &
X2 S)
A. What are the breakeven stock prices for this trade?
B. What are the stock prices that make this a profitable
trade?
[The correct answer is not 19.50 or 19.00 for the lower bound,
it is 15.50]
4.The current price of...

A trader creates a long butterfly spread from call options with
strike prices of $160, $170, and $180 per share by trading a total
of 40 option contracts (10 contracts at $160, 20 contracts at $170
and 10 contracts at $180). Each contract is written on 100 shares
of stock. The options are worth $20, $24, and $30 per share of
stock.
What is the value of the butterfly spread at maturity as a
function of the then stock price?...

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 following prices are available for call and put options on a
stock priced at $50. The risk-free rate is 6 percent and the
volatility is 0.35. The March options have 90 days remaining and
the June options have 180 days remaining.
Strike
March (calls)
June (calls)
March (puts)
June (puts)
45
6.84
8.41
1.18
2.09
50
3.82
5.58
3.08
4.13
55
1.89
3.54
6.08
6.93
Use this information to answer the following questions. Assume
that each transaction consists of...

The following prices are available for call and put options on a
stock priced at $50. The risk-free rate is 6 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
45
6.84
8.41
1.18
2.09
50
3.82
5.58
3.08
4.13
55
1.89
3.54
6.08
6.93
Use this information to answer the following questions. Assume
that each transaction consists of one contract...

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.

Suppose that call options on a stock with strike prices $300
and $345 cost $30 and $25, respectively. How can the options be
used to create a bull spread?
Call 1 – Strike $300: Position Long or short?__________
Call 2 – Strike $345: Position Long or
short?__________
I. Construct
a table that shows the profit and payoff for the spread.
II. When
is the Maximum profit? How much?
III. Draw
a diagram for the spread showing the total...

The following prices are available for call and put options on a
stock priced at $50. The risk-free rate is 6 percent and the
volatility is 0.35. The March options have 90 days remaining and
the June options have 180 days remaining. The Black-Scholes model
was used to obtain the prices.
Calls
Puts
Strike
March
June
March
June
45
6.84
8.41
1.18
2.09
50
3.82
5.58
3.08
4.13
55
1.89
3.54
6.08
6.93
. Use the June/March 50 call spread....

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...

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