Design a butterfly spread using the following data

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Reference no: EM131089601

1. You expect the price of the stock to fall, but in a limited range of 35 to 25. A put with exercise price of 35 has a premium (price) of 4 and a put with exercise price of 25 has a premium (price) of 1.50.

a. Designan option spread (put Bear Spread) andcalculateits net cost and its maximum loss.
b. Calculatecost basis of buying the stock if you end up with exercising put with exercise price of 25.
c. Calculatethe maximum gain of this strategy
d. Calculatethe break-even point

2. Design a butterfly spread using the following data: Market price = 50; Call 1 Exercise price = 45 and Premium = 7.25; Call 2 Exercise price = 50 and Premium = 2.75; and Call 3 Exercise Price = 55 and Premium = 1.25.

Reference no: EM131089601

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