Make a BUTTERFLY SPREAD with the following PUT OPTIONS K PUT PRICE $33 $2 $40 $5 $47
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Question:
Make a BUTTERFLY SPREAD with the following PUT OPTIONS
K PUT PRICE
$33 $2
$40 $5
$47 $9
ANSWER THE FOLLOWING QUESTIONS TO CREATE APPROPRIATE TABLE AND GRAPH FOR BUTTEFLYSPREAD'S PAYOFF ANDPROFIT,RESPECTIVELY:
- WHAT SHOULD BE THE STRATEGY TO CREATE BUTTERFLY SPREAD
- WOULD THE TRADER INITIALLY FACE A CASH INFLOW OR OUTFLOW? HOW MUCH PER SHARE?
- WHAT ARE THE PAYOFF AND PROFITTABLE?
- WHAT ARE THE PAYOFF AND PROFITGRAPH?
- AT WHAT STOCK PRICE(S) WOULD THE TRADER OF THIS BUTTERFLY SPREAD EXPECT A POSITIVEPROFIT?
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