Netflix stock is currently trading at $3200. Mr. XYZ expects large volatility in Netflix irrespective of which direction the movement is, upwards or downwards. Mr. XYZ buys 2 ATM Netflix Call Options with a strike price of $ 3200 at a premium of $ 97.90 each, sells 1 ITM Netflix Call Option with a strike price of $ 3100 at a premium of $ 141.55 and sells 1 OTM Netflix Call Option with a strike price of $ 3300 at a premium of $ 64. Due to the volatility of Netflix stock price, Mr. XYZ plans to adopt a Short Call Butterfly option strategy. The strategy is to buy 2 ATM call options, sell 1 ITM call option, and sell 1 OTM call option. 

 a. Calculate the strategy payoff to Mr. XYZ.

 b. Calculate the breakeven price for this strategy.

 c. Draw a payoff chart from this strategy.

Answer rating: 100% (QA)

To calculate the strategy payoff we need to consider the different scenarios based on the stock price at expiration Lets first calculate the total pre... View the full answer