An investor creates a butterfly spread by trading 9-month call options with strike prices of $115,...
An investor creates a butterfly spread by trading 9-month call options with strike prices of $115, $125, and $135. The prices of the options are $20.50, $14.50, and $9.50, respectively.
What is the total payoff when the stock price in 9 months is $128?
(Note: Total payoff does not include initial investment)
|
$5 |
||
|
$7 |
||
|
$0 |
||
|
$10 |
Homework Answers
In butterfly spread investor will buy $115 ans $135 option and sell $125 option.
total payoff will be positive from $115 option and negative from $125 option which will be equal to (128 - 115) + 2 *(125 - 128)
= $7
Correct option is $7
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