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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.
- 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.
- What additional information would be required to determine whether your strategy had been profitable?
- What is the name of this strategy?
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