1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
Kruka [31]
3 years ago
11

a trader creates a long butterfly spread from options with strike prices x, y, and z, where x < y < z, and y is exactly mi

dway between x and z. a total of 400 options are traded. the difference between x and y is $13. the difference in the prices of the options with strike prices of z and y is $5.03. the difference in the prices of the options with strike prices of y and x is $6.67. what is the maximum net gain (after the cost of the options is taken into account)
Business
1 answer:
Montano1993 [528]3 years ago
3 0

Answer:

<em>$1006 </em>

Explanation:

A long butterfly is created by following these steps

  •  Long 1 call option for strike X ( highest premium say C)
  • Short 2 call option for Strike Y (premium =C-6.67 )
  •  Long 1 call option for strike Z (premium = C-6.67 - 5.03 = C-11.70 where X<Y<Z

Here, Y-X = Z-Y =$11.70

<u>i) whenever the price at maturity goes below the price of x ( no call option is executed )</u>

payoff =  2*(C-6.67) -C-(C-11.7) = - 13.34 + 11.70 = - 1.64

<u>ii) when the price at maturity is between X and Y, only call with strike X is executed </u>

hence  payoff = -1.64 +(P-X) where P is the Price at maturity

p - x = y-x = 11.70

hence maximum payoff = - 1.64 +  11.70 = $10.06

<u>iii) When the price is between Y and Z , only call with strike X and Y are executed.</u>

hence, payoff = -1.64 + (P-X)  -2* (P-Y) = -1.64 +( 2Y - X - P) and this value decreases as P increases

the minimum payoff occurs when P=Z

So, maximum payoff = -1.64 + (Z-X) - 2*(Z-Y) = -1.64 + 23.4 - 2*11.7 = -$1.64

<u>iv) When the price at maturity is more than Z , all calls are executed</u>

hence, payoff = -1.64 +(P-X) -2* (P-Y) + (P-Z) = -1.64+(2Y-X-Z)

=  -1.64+(Y-X -(Z-Y)) = -1.64+(11.7 - 11.70)

= -$1.64  

 the maximum payoff occurs when P=Y

considering the  four options  traded the maximum payoff = $10.06

<em>Finally determine the maximum net gain when 400 options are traded</em>

<em>= 10.06 * 400 / 4 </em>

<em>= 10.06 * 100 =  $1006 </em>

You might be interested in
What is the purpose of money? (1 point) it makes trading goods and services more efficient. it gives the government a way to tra
Natali5045456 [20]

it makes trading goods and services more effective i just took the test and got it right

4 0
3 years ago
Read 2 more answers
Archie Co. purchased a framing machine for $45,000 on January 1, 2021. The machine is expected to have a four-year life, with a
k0ka [10]

Answer: $10,000 and $25,000

Explanation:

DEPRECIATION FOR 2022.

Straight line method of depreciation means it depreciates by the same amount every year. You can calculate by

(Cost - Residual Value) / useful life.

=($45,000 - $5,000) / 4

= $10,000.

Each year the framing machine reduces by $10,000 meaning in 2022 the depreciation will be $10,000.

BOOK VALUE AT DECEMBER 31, 2022

We've established that every year the value drops by $10,000.

On December 31, 2021, it dropped by $10,000.

On December 31, 2022, it dropped by another $10,000.

Adding that together gives you 10,000 + 10,000 = $20,000.

$20,000 is the total depreciation at the end of 2022.

Subtract that figure from the cost,

=$45,000-$20,000

=$25,000.

BOOK VALUE ON DECEMBER 31, 2022 is $25,000.

8 0
3 years ago
which of the following is true about product life cycles? group of answer choices a reminder promotion is normally used in the i
bulgar [2K]

Based on business strategies and production, the statement that is true about product life cycles is "Early adopters buy in the introductory phase."

<h3>What is the Life Cycle of a Product</h3>

The life cycle of a product is a term that is used to describe the proportion of time a product goes from being introduced into the market by the producers until it's taken off the shelve.

Usually, the product life cycle is in different stages, and each of the stages is important to the success of the products in the market.

<h3>The Life cycle of a product is the following:</h3>
  • introduction,
  • growth,
  • maturity, and
  • decline.

Generally, the in the introduction stage of a product's life the early adopters are the first category of consumers that try new products before most other consumers key into it.

Hence, in this case, it is concluded that the correct answer is option c. "Early adopters buy in the introductory phase."

Learn more about the Product Life cycle here: brainly.com/question/7510515

#SPJ1

8 0
1 year ago
Maxie's Game World sold games to a customer on credit for $2,600, terms 1/10, n/30 and the cost of the games was $1,700. When re
aleksandrvk [35]

Answer:

$2,600 in the Accounts Receivable Dr./Sales Cr. column and $1,700 in the Cost of Goods Sold Dr./Inventory Cr. column.

Explanation:

If we assume that Maxie's Game World uses a perpetual inventory system, the appropriate journal entries should be:

Date XXX, merchandise sold on credit to client YYY, terms 1/10, n/30

Dr Accounts receivable 2,600

    Cr Sales revenue 2,600

Dr Cost of goods sold 1,700

    Cr Merchandise inventory 1,700

7 0
3 years ago
economists argue that rent control is a highly efficient way to help the poor raise their standard of living.
mote1985 [20]

Economists argue that rent control is a highly efficient way to help the poor raise their standard of living. The statement is False.

<h3>What is Economists?</h3>

An economist refers an individual who possesses deep knowledge about the connection between the production that takes place with the help of resources and the output received to determine the growth.

Rent control is a highly efficient way to help the poor raise their standard of living is False. The quantity of legal rise would be limited by rent control, and most landlords support these rules.

Therefore, the statement is False.

Learn more about Economists, here:

brainly.com/question/13372876

#SPJ2

economists argue that rent control is a highly efficient way to help the poor raise their standard of living. True/False.

5 0
1 year ago
Other questions:
  • Suppose you believe that basso inc.'s stock price is going to increase from its current level of $22.50 sometime during the next
    11·1 answer
  • Angara Corporation uses activity-based costing to determine product costs for external financial reports. The company has provid
    7·1 answer
  • Compute cost of goods sold for the period using the following information. Finished goods inventory, beginning $ 376,000 Work in
    13·1 answer
  • What are the four major factors contained in the definition of e-business?
    6·1 answer
  • 5. If a business letter is part of a series of correspondence, a/an _______ line is often included. A. attention B. urgent C. co
    10·1 answer
  • Which of the following is not a type of bank? A. Credit Union B. Online Bank C. Payday Lender D. Retail Bank
    10·2 answers
  • Smith Office Equipment Company's budgeted manufacturing overhead is $5,400,000. Overhead is allocated on the basis of direct lab
    7·1 answer
  • One of the themes that came out of the survey responses is that employees take their responsibility of serving fresh, hot food q
    5·1 answer
  • At the beginning of September, Selena Cantu started Cantu Wealth Management Consulting, a firm that offers financial planning an
    10·1 answer
  • Simon bought a computer and made monthly payments. by the end of the month, simon had no money left for groceries. which step in
    7·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!