Question
Here are today's prices of 6-month call options on stock XYZ. The current price of the stock, S(t), is $50. CALL CALL CALL Expiration
Here are today's prices of 6-month call options on stock XYZ. The current price of the stock, S(t), is $50. CALL CALL CALL Expiration 6 mths 6 mths 6 mths Strike $50.00 $60.00 $70.00 Option price $5.50 $3.00 $1.00 Implied vol 40% 35% 32% You are considering buying an option butterfly spread on XYZ. This consists of: Buy 1 $50-strike call; Sell (write) 2 $60-strike calls; Buy 1 $70-strike call. [A] What would you pay (or get paid) to establish this butterfly spread? [B] Plot the payoff of this option portfolio as a function of S(T), the terminal price of the stock. [In your graph the x-axis is S(T) and the y-axis is the payoff.]
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Fundamentals Of Corporate Finance
Authors: Jonathan Berk, Peter DeMarzo, Jarrad Harford
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0135811600, 978-0135811603
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