Explain how a butterfly spread can be created

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Reference no: EM131049074

Three call options on a stock have the same expiration date and strike prices of $55, $60, and $65. The market prices are $3, $5, and $8, respectively.

a) Explain how a butterfly spread can be created

b) Construct a table showing the payoffs from the strategy

c) For what range of stock prices would the butterfly spread lead to a loss

d) Now suppose that those options are put options (rather than call options). Explain how a butterfly spread (with the same payoff as the one in question b) ) can be created, using the puts options

Reference no: EM131049074

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