Verify that the butterfly spread in Figure 3.14 can be duplicated by the following transactions (use the

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Verify that the butterfly spread in Figure 3.14 can be duplicated by the following transactions (use the option prices in Table 3.4):
In Figure 3.14

a. Buy 35 call, sell two 40 calls, buy 45 call.
b. Buy 35 put, sell two 40 puts, buy 45 put.
c. Buy stock, buy 35 put, sell two 40 calls, buy 45 call.

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Derivatives Markets

ISBN: 978-0321543080

4th edition

Authors: Rober L. Macdonald

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Question Posted: Dec 18, 2015 04:56 AM

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Verify that the butterfly spread in Figure 3.14 can be duplicated by the following transactions (use the

Question:

Profit (S) + Written straddle + Purchased call Purchased put 15 10F 0 -5 -10 -15 20 20 25 30 35 40 45 50 55 60 XYZ Stock Price (S)

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The following three figures show the individual legs of each of ...View the full answer

Derivatives Markets

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