1 a trader creates a long butterfly spread from options, Ask an Expert

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1. A trader creates a long butterfly spread from options with strike prices of $60, $65, and $70 per share by trading a total of 40 option contracts (10 contracts at $60, 20 contracts at $65 and 10 contracts at $70). Each contract is written on 100 shares of stock. The options are worth $10, $12, and $15 per share of stock.

A. What is the value of the butterfly spread at maturity as a function of the then stock price?

B. What is the profit of the butterfly spread at maturity as a function of the then stock price?

2. A trader creates a long strangle with put options with a strike price of $60 per share, and call options with a strike of $70 per share by trading a total of 20 option contracts (10 put contracts and 10 call contracts). Each contract is written on 100 shares of stock. The put option is worth $9 per share, and the call option is worth $7 per share.

A. What is the value of the strangle at maturity as a function of the then stock price?

B. What is the profit of the strangle at maturity as a function of the then stock price?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92100114

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