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TAKING A TEST PLS ANSWER ASAPPP You work as an option trader at Deutsche Bank. You are neutral on the market and considering setting up

TAKING A TEST PLS ANSWER ASAPPP

You work as an option trader at Deutsche Bank. You are neutral on the market and considering setting up a neutral strategy with butterfly spread. You have the following information: A one month call option with exercise price of $60 costs $8.10. A one month call with exercise price of $62.5 costs $6.50, and A one month call with exercise price of $65 costs $5.20. You will use these options to build a butterfly spread.

  1. What is the cost to set up this strategy? (sample answer: $8.50)
  2. What is the highest profit of this strategy? (sample answer: $8.50)
  3. What is the maximum loss of this strategy? (sample answer: $8.50)
  4. What is the profit if the stock close at $61 on expiration? (sample answer: $8.50)
  5. What is the profit if the stock close at $62 on expiration? (sample answer: $8.50)

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