Stock ABC has the following characteristics:

• The current price to buy one share is 100.

• The stock does not pay dividends.

• European options on one share expiring in one year have the following prices:

A butterfly spread on this stock has the following profit diagram. 

The continuously compounded risk-free interest rate is 5%.

Determine which of the following will NOT produce this profit diagram.

(A) Buy a 90 put, buy a 110 put, sell two 100 puts

(B) Buy a 90 call, buy a 110 call, sell two 100 calls

(C) Buy a 90 put, sell a 100 put, sell a 100 call, buy a 110 call

(D) Buy one share of the stock, buy a 90 call, buy a 110 put, sell two 100 puts

(E) Buy one share of the stock, buy a 90 put, buy a 110 call, sell two 100 calls 

Transcribed Image Text:

Strike Price 90 100 110 Call option price 14.63 6.80 2.17 Put option price 0.24 1.93 6.81