Question
An investor creates a butterfly spread by trading 9-month call options with strike prices of $50, $60, and $70. The prices of the options are
An investor creates a butterfly spread by trading 9-month call options with strike prices of $50, $60, and $70. The prices of the options are $12.25, $7.00, and $3.00, respectively. (Note: Total payoff does not include the initial investment.)
a. What is the initial investment?
b. What is the total payoff when the stock price in 9 months is $45?
c. What is the total payoff when the stock price in 9 months is $65?
d. What is the total payoff when the stock price in 9 months is $75?
e. What is the profit/loss(P&L) when the stock price in 9 months is $56?
f. What is the profit/loss(P&L) when the stock price in 9 months is $68?
g. What is the profit/loss (P&L) when the stock price in 9 months is $78?
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