A ldquobutterfly spreadrdquo involves the following, Ask an Expert

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A “butterfly spread” involves the following strategy: buy 1 call option with strike price X1; write two call options with strike price X2; and buy 1 call option with strike price X3; where X1 < X2 < X3 and X2 - X1 = X3 - X2.: The options have the same expiration date. Graph the payoff from this strategy as a function of ST (the price of the underlying share at the expiration date). At which values of ST is the payoff from this strategy exactly equal to zero? At which value of ST is the payoff highest?

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Financial Management, Finance

Category:- Financial Management
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