Suppose the price of IBM May 100 call is $5, May 105 call is $2.5 and May 110 call is $1.
a)How to create a butterfly spread?
Buy 1 contract of call options with K1=100 and K3=110, respectively and Sell 2 contracts of call option with K2=105
b)Fill in the missing values for the following Table.
|
Stock Price Range
|
Payoff
|
Profit (the initial cost is1)
|
|
ST=100
|
0
|
-1
|
|
100T=105
|
ST -100
|
ST -101
|
|
105T=110
|
110-ST
|
109-ST
|
|
ST>110
|
0
|
-1
|
c)What is the maximum potential profit of your strategy?
400
d) If, at expiration, the price of a share of IBM stock is $102, what would be your profit?
+100
e)What is the maximum loss you could suffer from your strategy?
-100
f) What are break even stock prices?
101 and 109
show me how to get these numbers