Suppose the prices of 3-month European call options with strike prices of $40, $45 and $50 are
$6.08, $2.70, and $0.86, respectively. 
a) Explain how a trader can create a butterfly spread using these options.
b) What is the profit when the price of the underlying asset in three months is $40
c) What is the profit when the price of the underlying asset in three months is $43
d) What is the profit when the price of the underlying asset in three months is $49
e) For what range of prices of the underlying asset does a trader make a profit?

Answer rating: 100% (QA)

Butterfly Spread with European Call Options a Creating the Butterfly Spread A butterfly spread combi... View the full answer