Question: Create a BUTTERFLY SPREAD with the following PUT OPTIONS K PUT PRICE $33 $2 $40 $5 $47 $9 ANSWER THE FOLLOWING QUESTIONS TO CREATE APPROPRIATE

Create a BUTTERFLY SPREAD with the following PUT OPTIONS

K

PUT PRICE

$33

$2

$40

$5

$47

$9

ANSWER THE FOLLOWING QUESTIONS TO CREATE APPROPRIATE TABLE AND GRAPH FOR BUTTEFLYSPREAD'S PAYOFF AND PROFIT, RESPECTIVELY:

1- WHAT SHOULD BE THE STRATEGY TO CREATE BUTTERFLY SPREAD

2- WOULD THE TRADER INITIALLY FACE A CASH INFLOW OR OUTFLOW? HOW MUCH PER SHARE?

3- WHAT ARE THE PAYOFF AND PROFIT TABLE?

4- WHAT ARE THE PAYOFF AND PROFIT GRAPH?

5- AT WHAT STOCK PRICE(S) WOULD THE TRADER OF THIS BUTTERFLY SPREAD EXPECT A POSITIVE PROFIT?

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