Question
Demonstrate how a butterfly spread can be constructed using put or call options and discuss the...
Demonstrate how a butterfly spread can be constructed using put or call options and discuss the potential outcomes from this strategy.
Homework Answers
Answer #1
In butterfly spread position, an investor will undertake 4 call
option with respect to 3 different strike price. Buying 1 call
option at a particular strike price while simultaneously selling 2
call option at higher price and buying 1 other call option at an
even higher strike price.
Not the answer you're looking for?
Similar Questions
Explain how you would construct a butterfly spread using call options with 3 different strikes of...
Explain how you would construct a butterfly spread using call
options with 3 different strikes of 15, 17.5 and 20. These call
options are priced at 4,2 and 0.5 respectively. Draw the payoff
diagram of this spread showing the cost of the spread, the break
even points and the maximum payoff.
A trader creates a long butterfly spread from call options with strike prices of $160, $170,...
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?...
Using examples, distinguish between call options and put options. Explain how call options allow investors to...
Using examples, distinguish between call options and put options.
Explain how call options allow investors to take advantage of
gearing, and how put options can be used to limit the exposure of
investors to risk.
A butterfly spread is the purchase of one call at exercise price X1, the sale of...
A butterfly spread is the purchase of one call at exercise price
X1, the sale of two calls at exercise price X2, and the purchase of
one call at exercise price X3. Then X1 < X2 and X2 < X3 by
equal amounts, and all the calls have the same expiration date.
Let’s use a few numbers to make our calculations and graph more
transparent. Suppose we are buying one call at X1 = $50, writing
two calls at X2...
Current price quote is $12. Try to form bull spread using call options and calculate the...
Current price quote is $12. Try to form bull spread using call
options and calculate the dollar amount net profit/loss of your
bull spread when price becomes $12.6. Option Strike Premium Call 1
E1 = $12 c1 = $0.6 Call 2 E2 = $13 c2 = $0.1 Put 1 E1 = $12 p1 =
$0.6 Put 2 E2 = $13 p2 = $1.5
The following prices are available for call and put options on a stock priced at $50....
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 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...
When regarding stocks, why are put options sometimes better than call options, and other times it's...
When regarding stocks, why are put options sometimes better than
call options, and other times it's the reverse. How can investors
make money while using either a put or a call options?
2. Analyze how investors can make (or lose) money from put and call options by creating...
2. Analyze how investors can make (or lose) money from put and
call options by creating an exposure and hedging it with those
tools (quantify).
Suppose a stock is trading at $4 in July. An options trader executes a spread by...
Suppose a stock is trading at $4 in July.
An
options trader executes a spread by selling an
August
put with strike $30 for $50, buying an August put with strike $40
for $300, buying an
August
call with strike $40 for $300 and selling an August call with
strike 50 for $50.
Write
the payoff function of the spread and provide the corresponding
diagram. Write a
paragraph discussing if the spread provides a limited/unlimited
profit potential and possible
corresponding...
ADVERTISEMENT
Need Online Homework Help?
Get Answers For Free
Most questions answered within 1 hours.
ADVERTISEMENT
Active Questions
asked 3 minutes ago
asked 21 minutes ago
asked 41 minutes ago
asked 49 minutes ago
asked 57 minutes ago
asked 1 hour ago
asked 1 hour ago
asked 1 hour ago
asked 1 hour ago
asked 2 hours ago
asked 3 hours ago
asked 3 hours ago