An investor makes the following transactions in calls on a stock: - Buys one call defined by
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An investor makes the following transactions in calls on a stock:
-Buys one call defined by C1 = $7 and K1 = $55
-Sells two calls defined by C2 = $4 and K2 = $60
-Buys one call defined by C3 = $2 and K3 = $65
Where C1, C2 and C3 are option premiums and K1, K2 and K3 are option strike prices.
a.Please draw a payoff diagram and a profit diagram for this butterfly strategy. You need to give the values of key points on your diagram.
b. Calculate the profits for when the price is $50, $58 and $65
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