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Suppose the price of IBM May 100 call is $5, May 105 call is $2.5 and May 110 call is $1. a)How to create a

Suppose the price of IBM May 100 call is $5, May 105 call is $2.5 and May 110 call is $1.

a)How to create a butterfly spread?

Buy 1 contract of call options with K1=100 and K3=110, respectively and Sell 2 contracts of call option with K2=105

b)Fill in the missing values for the following Table.

Stock Price Range

Payoff

Profit (the initial cost is1)

ST100

0

-1

100T105

ST 100

ST 101

105T110

110-ST

109-ST

ST>110

0

-1

c)What is the maximum potential profit of your strategy?

400

d) If, at expiration, the price of a share of IBM stock is $102, what would be your profit?

+100

e)What is the maximum loss you could suffer from your strategy?

-100

f) What are break even stock prices?

101 and 109

show me how to get these numbers

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