Question: Question 2 (3 Points) Three European put options on a stock have the same expiration date and strike prices of $55, $60, and $65. The

Question 2 (3 Points) Three European put options on a stock have the same expiration date and strike prices of $55, $60, and $65. The premiums of the put options are $3, $5, and $8, respectively. (Ignore time value of money)

a) Explain how a written (short) butterfly spread can be created.

b) Construct a table showing the payoff / profit from each option in short butterfly spread.

c) Draw the profit diagram for the short butterfly spread and show the maximum profit, maximum loss and break-even prices on the graph.

d) For what ranges of stock prices would the short butterfly spread position lead to a loss?

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