Assume that there is an OTC T-bond spot call with an exercise price of $100,000 and premium
Question:
Assume that there is an OTC T-bond spot call with an exercise price of $100,000 and premium of $1,000, an OTC T-bond spot call option with an exercise price of $101,000 and premium of $500, and an OTC T-bond spot call option with an exercise price of $102,000 and premium of $250. Also assume the three options expire at the same time and that there is no accrued interest at expiration. Show graphically and in a table the profit and T-bond price relationships at expiration for the following positions on the OTC T-bond options. Evaluate at spot T-bond prices of $99,500, $99,750, $100,000, $100,250, $100,500, $100,750,
$101,000, $101,250, $101,500, $101,750, $102,000, $102,250, and $102,500.
a. A long butterfly spread formed by buying one 100 T-bond call, selling two 101 T-bond calls, and buying one 102 T-bond call.
b. A short butterfly spread formed by selling one 100 T-bond call, buying two 101 T-bond calls, and selling one 102 T-bond call.
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