Question
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 |
100 | ST 100 | ST 101 |
105 | 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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