Call options on a stock are available with strike prices of $15, $17.5 , and $20...
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.
(a) How can those options be used to create a butterfly spread? 2
(b) What is the initial investment?
(c) Construct a table showing how payoff and profit varies with ST in 3 month, for the butterfly spread you created. The table should looks like this:
| Stock Price | Payoff | Profit |
| ST ≤ 15 | ||
| 15 < ST ≤ 17.5 | ||
| 17.5 < ST < 20 | ||
| ST ≥ 20 |
Homework Answers
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