Question
In: Finance
Suppose that call options on a stock with strike prices $120, $140 and $160 cost $13,...
Suppose that call options on a stock with strike prices $120, $140 and $160 cost $13, $14 and $18, respectively. How can the options be used to create a Butterfly spread?
Call 1 – Strike $120: Position Long or short?__________
Call 2 – Strike $140: Position Long or short?__________
Call 3 – Strike $160: Position Long or short?__________
I. Explain how you can built the spread and write a table that shows the profit and payoff for each option and total spread.
II. When is the Maximum profit? How much?
III. Draw a diagram for the spread showing the total value of the spread and both call options.
Solutions
jeff jeffy answered 2 years agoRelated Solutions
3. Suppose that call options on a stock with strike prices $40 and $45 cost $5...
3. Suppose that call options on a stock with strike prices $40
and $45 cost $5 and $4, respectively. They both have 10-month
maturity. (a) How can those two call options be used to create a
bull spread?
(b) What is the initial investment?
(c) Construct a table showing how payoff and profit varies with
ST in 10 month, for the bull spread you created. The table should
looks like this:
Stock Price
Payoff
Profit
ST < K1
K1 <...
Call options on a stock TKM are available with strike prices of $13, $15, $17.5, $18.5...
Call options on a stock TKM are available with strike prices of
$13, $15, $17.5, $18.5 and $20 and expiration dates in three
months. Their prices are $5.5, $4, $2, $1.5 and $0.5 respectively.
Put options on the same stock are available with strike prices of
$24, $23.5, $22.5, $21 and $19 and expiration dates in three
months. Their prices are $5, $4, $2, $1.5 and $0.5 respectively.
TKM is currently trading at $19.40 and assuming the company is in...
Call options on a stock TKM are available with strike prices of $13, $15, $17.5, $18.5...
Call options on a stock TKM are available with strike prices of
$13, $15, $17.5, $18.5 and $20 and expiration dates in three
months. Their prices are $5.5, $4, $2, $1.5 and $0.5 respectively.
Put options on the same stock are available with strike prices of
$24, $23.5, $22.5, $21 and $19 and expiration dates in three
months. Their prices are $5, $4, $2, $1.5 and $0.5 respectively.
TKM is currently trading at $19.40 and assuming the company is in...
Suppose that put options on a stock with strike prices $30 and $35 cost $4 and...
Suppose that put options on a stock with strike prices $30 and
$35 cost $4 and $7, respectively. How can the options be used to
create (a) a bull spread and (b) a bear spread? For both spreads,
show the profit functions for the intervals defined by the strike
prices, and their graphical representation.
Suppose that put options on a stock with strike prices $30 and $35 cost $4 and...
Suppose that put options on a stock with strike prices $30 and
$35 cost $4 and $7, respectively. They both have 6-month
maturity.
(a) How can those two options be used to create a bear
spread?
(b) What is the initial investment?
(c) Construct a table that shows the profits and payoffs for the
bear spread when the stock price in 6 months is $28, $33 and $38,
respectively. The table should look like this:
Stock Price
Payoff
Profit
$28...
Suppose that put options on a stock with strike prices $30 and $34 cost $4 and...
Suppose that put options on a stock with strike prices $30 and
$34 cost $4 and $6, respectively. How can the options be used to
create (a) a bull spread and (b) a bear spread? Construct a table
that shows the profit and payoff for both spreads.
Call options on a stock are available with strike prices of $15, $17.5, and $20 and...
Call options on a stock are available with strike
prices of $15, $17.5, and $20 and
expiration dates in 3-months. Their
prices are $4, $2, and $0.5, respectively. An investor creates
a portfolio by buying call options with strike
prices of $15 and $20 and selling 2 call options
with strike prices of $17.5.
a. Construct a table showing how profit varies with the stock
price for this portfolio.
b. Plot the payoff diagram?
8. Suppose that put options on a stock with strike prices $33 and $40 cost $2...
8. Suppose that put options on a stock with strike prices $33
and $40 cost $2 and $5, respectively.
a. How can the options be used to create (a) a bull spread and
(b) a bear spread? •
b. Is there a maximum profit or loss for each strategy? If so,
what are they?
c. What are the breakeven points?
d. At what range of future stock prices will the spread make
profit and loss.
Suppose you are given the following prices for the options on ABC stock: Strike (in $) ...
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
please write the solving process
without using excel
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...
Suppose you are given the following prices for the options on ABC stock: Strike (in $)...
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 S(T)...
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