Question
Suppose you construct a strategy based on options on a stock that is currently selling for $100. The strategy is as follows: Buy one call
Suppose you construct a strategy based on options on a stock that is currently selling for $100. The strategy is as follows: Buy one call option having an exercise price of $95. Sell two calls having an exercise price of $100. Buy one call option having an exercise price of $105.
All of the options are written on the same stock and all have the same expiration date.
1. Compute the payoff (the dollars you receive) from this strategy at the expiration date for each of the following alternative stocks prices: $90, $95, $98, $100, $102, $105, and $110
2. What additional information would be required to determine whether your strategy had been profitable?
3. What is the name of this strategy?
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