(Solution) 12- In Developing The Butterfly Spread Position, We Showed That It Could Be Broken Down Into Two Call Option Money Spreads. Using The Price Data For... | Snapessays.com


(Solution) 12- In developing the butterfly spread position, we showed that it could be broken down into two call option money spreads. Using the price data for...


12- In developing the butterfly spread position, we showed that it could be broken down into two call option money spreads. Using the price data for SAS stock options from Exhibit 22.17, demonstrate how a butterfly profit structure similar to that shown in Exhibit 22.30 could be created using put options. Be specific as to the contract positions involved in the trade and show the expiration date net payoffs for the combined transaction.

 

 

 

 

12- In developing the butterfly spread position, we showed that it could be broken down into two call option money spreads. Using the price data for SAS stock options from Exhibit 22.17, demonstrate how a butterfly profit structure similar to that shown in Exhibit 22.30 could be created using put options. Be specific as to the contract positions involved in the trade and show the expiration date net payoffs for the combined transaction.12- In developing the butterfly spread position, we showed that it could be broken down into two

 

call option money spreads. Using the price data for SAS stock options from Exhibit 22.17,

 

demonstrate how a butterfly profit structure similar to that shown in Exhibit 22.30 could be

 

created using put options. Be specific as to the contract positions involved in the trade and show

 

the expiration date net payoffs for the combined transaction.

 

Exhibit 22.17

 

Hypothetical SAS Corporation Stock and Option Prices

 

Exercise

 

Market

 

Intrinsic

 

Time

 

Instrument

 

Price ($)

 

Price ($)

 

Value ($)

 

Premium ($)

 

Stock:

 

------

 

40.00

 

$

 

------

 

------

 

Call:

 

#1

 

35.00

 

$

 

8.07

 

$

 

5.00

 

$

 

3.07

 

$

 

#2

 

40.00

 

$

 

5.24

 

$

 

$0.00

 

5.24

 

$

 

#3

 

45.00

 

$

 

3.24

 

$

 

$0.00

 

3.24

 

$

 

Put:

 

#1

 

35.00

 

$

 

1.70

 

$

 

$0.00

 

1.70

 

$

 

#2

 

40.00

 

$

 

3.67

 

$

 

$0.00

 

3.67

 

$

 

#3

 

45.00

 

$

 

6.47

 

$

 

5.00

 

$

 

1.47

 

$

 

Exhibit 22.30 Comparing the Butterfly Spread and Short Straddle Positions

 

Net Profit

 

8.91 -

 

4.17 -

 

-0.83

 

SAS Stock Price

 

3 5

 

4 5

 

Buat Expiration

 

Short Straddle

 

Spread

 


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This question was answered on: May 23, 2022

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