Look for the butterfly strategy in options. Explain this and make the graph for the payoff...
Look for the butterfly strategy in options. Explain this and make the graph for the payoff for this strategy.
Homework Answers
Butterfly strategy is a neutral strategy. This strategy consists of 4 options, which includes two call option in long position and two call option in short position. The call option which are sold , have the same strike price. The call options which are bought have different strike price , out of which one has higher strike price and the other has lower strike price. This strategy involves limited risk and limited profit and has only one type of option in a strategy rather than a combination of both call and put.
The payoff of butterfly strategy is shown below.
This
graph shows the payoff and profit in case of butterfly. The
difference between payoff and profit is due to premium.
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Look for the butterfly strategy in options. Explain this and
make the graph for the payoff...
You are neutral on the market and considering setting up butterfly options strategy. You have the...
You are neutral on the market and considering setting up butterfly options strategy. You have the following information: A one month call with strike price of $60 costs $6. A one month call with strike price of $62.5 costs $4, and A one month call with strike price of $65 costs $3. You will use these options to build a butterfly spread.
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
A trader creates a long butterfly spread from put options with strike prices of $160, $170,...
A trader creates a long butterfly spread from put options with strike prices of $160, $170, and $180 per share by trading a total of 20 option contracts (5 contracts at $160, 10 contracts at $170 and 5 contracts at $180). Each contract is written on 100 shares of stock. The options are worth $22, $28, and $36 per share of stock. What is the value (payoff) of the butterfly spread at maturity as a function of the then stock...
A trader creates a long butterfly spread from put options with strike prices of $160, $170,...
A trader creates a long butterfly spread from put options with strike prices of $160, $170, and $180 per share by trading a total of 20 option contracts (5 contracts at $160, 10 contracts at $170 and 5 contracts at $180). Each contract is written on 100 shares of stock. The options are worth $22, $28, and $36 per share of stock. What is the value (payoff) of the butterfly spread at maturity as a function of the then stock...
When is it appropriate for an investor to purchase a butterfly spread? Suppose three put options on a stock have the same expiration date and strike prices of $65, $70, and $75. The market prices are...
When is it appropriate for an investor to purchase a butterfly spread? Suppose three put options on a stock have the same expiration date and strike prices of $65, $70, and $75. The market prices are $3.50, $6, and $7.50, respectively. Explain how a butterfly spread can be created. Construct a table showing the profit from the strategy. For what range of stock prices would the butterfly spread lead to a loss?
When is it appropriate for an investor to...
Three-month European put options with strike prices of $50, $55, and $60 cost $2, $4, and...
Three-month European put options with strike prices of $50, $55, and $60 cost $2, $4, and $7, respectively. 1) How can one create a butterfly spread using these options? 2) Please draw the payoff and profit diagrams of this butterfly strategy. 3) What are the maximum gain and maximum loss of the butterfly spread created using these put options? 4) For which two values of ST does the holder of the butterfly spread break even (with a profit of zero),...
Assume there are three Put options for Walmart stock at CBOE with strike price 50, 60...
Assume there are three Put options for Walmart stock at CBOE with strike price 50, 60 and 70, respectively. The current stock price for Intel is 55. (0) Construct a Butterfly Spread using these options. Specify the option positions you hold. Draw the terminal payoff graph for the butterfly spread.
#1 The following options on American Euro Call options are available. The current spot price of...
#1 The following options on American Euro Call options are available. The current spot price of the Euro is $1.00/Euro. You care going to construct a short butterfly spread that entails: Sell 1 in the money call Buy 2 at the money Calls (lower strike than sold call above) Sell 1 out of the money call This strategy is outlined below in the table, the first column tells you which position to take in each option contract. Decision Type Premium...
Form a long butterfly spread using the three call options in the table below CI X-...
Form a long butterfly spread using the three call options in the table below CI X- $90 C2 X= $100 C3 X= $110 T- 180 daysT- 180 daysT 180 davs 6.0600 0.4365 0.0187 11.4208 27.6602 18.5394 16.3300 0.7860 0.0138 Price DELTA GAMMA THETA VEGA RHO 10.3000 0.6151 0.0181 12.2607 26.8416 25.2515 11.2054 20.4619 30.7085 What does it cost to establish the butterfly spread? explain how each can be interpreted achieved by doing so? C3 remain the same. Does this create...
5) What options do we have to trade to produce the following payoff graph? 25 20...
5) What options do we have to trade to produce the following
payoff graph?
25 20 15 d 10 0 30 40 50 60 70 80 Stock price
When is it appropriate for an investor to purchase a butterfly spread? Suppose three put options on a stock have the same expiration date and strike prices of $65, $70, and $75. The market prices are $3.50, $6, and $7.50, respectively. Explain how a butterfly spread can be created. Construct a table showing the profit from the strategy. For what range of stock prices would the butterfly spread lead to a loss?
When is it appropriate for an investor to...
Assume there are three Put options for Walmart stock at CBOE with strike price 50, 60 and 70, respectively. The current stock price for Intel is 55. (0) Construct a Butterfly Spread using these options. Specify the option positions you hold. Draw the terminal payoff graph for the butterfly spread.
#1 The following options on American Euro Call options are available. The current spot price of the Euro is $1.00/Euro. You care going to construct a short butterfly spread that entails: Sell 1 in the money call Buy 2 at the money Calls (lower strike than sold call above) Sell 1 out of the money call This strategy is outlined below in the table, the first column tells you which position to take in each option contract. Decision Type Premium...
Form a long butterfly spread using the three call options in the table below CI X- $90 C2 X= $100 C3 X= $110 T- 180 daysT- 180 daysT 180 davs 6.0600 0.4365 0.0187 11.4208 27.6602 18.5394 16.3300 0.7860 0.0138 Price DELTA GAMMA THETA VEGA RHO 10.3000 0.6151 0.0181 12.2607 26.8416 25.2515 11.2054 20.4619 30.7085 What does it cost to establish the butterfly spread? explain how each can be interpreted achieved by doing so? C3 remain the same. Does this create...
5) What options do we have to trade to produce the following
payoff graph?
25 20 15 d 10 0 30 40 50 60 70 80 Stock price
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