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(uestion 1 (13 points) Three-month European call options with strike prices of $20 and $25 cost $5 and $3 respectively. Six-month European put options with
(uestion 1 (13 points) Three-month European call options with strike prices of $20 and $25 cost $5 and $3 respectively. Six-month European put options with strike prices of $25,$30, and $35 cost $1,$3, and $6 respectively. a) Explain how a short butterfly spread can be created. Construct a table showing the profit/loss from the strategy for each possible stock price. For what range of stock prices would the short butterfly spread lead to a loss? At what stock price you will have a zero profit? Illustrate the profit you will get by using this strategy with a diagram. (7 marks) b) Explain how a bull spread can be created from the call options above. Construct a table showing the profit from the strategy for each possible stock price. For what range of stock prices would the bull spread lead to a loss? Illustrate the profit you will get by using this strategy with a diagram. (6 marks) Attach a scan/image of your handwritten answers using the "Add a File" button
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