A trader creates a long butterfly spread from put options with strike prices of $90, $100,...
- A trader creates a long butterfly spread from put options with
strike prices of $90, $100, and $110 per share by trading a total
of 40 option contracts (buy 10 contracts struck at $90, sell 20
contracts struck at $100 and buy 10 contracts struck at $110). Each
contract is written on 100 shares of stock. The options are worth
$18, $24, and $32 per share of stock.
- What is the value of the butterfly spread at maturity as a function of the then stock price?
- What is the profit of the butterfly spread at maturity as a function of the then stock price?
Homework Answers
1.
=10*100*(MAX(90-St,0)-2*MAX(100-St,0)+MAX(110-St,0))
2.
=10*100*(MAX(90-St,0)-2*MAX(100-St,0)+MAX(110-St,0)-18+2*24-32)
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