1. A trader sells a strangle by selling a call option with a strike price of $50 for $3 and selling a put option with a strike price of $40 for $4.

For what range of prices of the underlying asset does the trader make a profit?

2) Three call options on a stock have the same expiration date and strike prices of $55, $60, and $65. The market prices are $3, $5, and $8, respectively.

a) Explain how a butterfly spread can be created.

b) Construct a table showing the payoffs from the strategy.

c) For what range of stock prices would the butterfly spread lead to a loss.