Apple Inc. (AAPL) is currently trading at $442. The market prices for January 21, 2017 maturity Apple
options are as follows:
Strike Call Price Put Price Strike Call Price Put Price
$430 $14.70 $1.61 $455 $1.59 $13.35
$435 $10.55 $2.70 $460 $0.86 $18.00
$440 $7.15 $4.38 $465 $0.46 $22.55
$445 $4.65 $6.80 $470 $0.26 $26.20
$450 $2.78 $9.85 $475 $0.15 $30.65
Consider the following strategy that longs put options at strike K 3 = $450 and K 2 = $440, shorts put options at strike K 1 = $435 and K 4 = $455. [HINT: This strategy is a variant of the butterfly put spread]
? Part A: Draw the Profit Diagram (with option premiums) of the Strategy over the underlying asset price at option expiration date.
? Part B: Evaluate the performance of the strategy at maturity. That is, find out the max loss, max gain and the two breakeven points of the strategy.