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Buying a call and selling

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Question:

(a) Which of the following is correct? Explain your answer based on the correct choice.

  • A calendar spread can be created by buying a call and selling a put when the strike prices are the same and the times to maturity are different
    • A calendar spread can be created by buying a put and selling a call when the strike prices are the same and the times to maturity are different
    • A calendar spread can be created by buying a call and selling a call when the strike prices are different and the times to maturity are different
    • A calendar spread can be created by buying a call and selling a call when the strike prices are the same and the times to maturity are different

(b) A trader creates a long butterfly spread from options with strike prices $60, $65, and $70 by trading a total of 400 options. The options are worth $11, $14, and $18. What is the maximum net loss (after the cost of the options is taken into account)? Explain your answer in detail.

Reference no: EM131238262

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