Create a payoff-profit table for Long Butterfly on LUV stock using call options. For the...
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Create a payoff-profit table for Long Butterfly on LUV stock using call options. For the table, use spot prices in 6 months from 55 to 65 in increments of 1.
b. What is the maximum risk of this position?
c. What is the maximum reward of this position?
d. What is the up side breakeven spot price?
e. What is the down side breakeven spot price?
f. How would the payoff-profit table change if you used put options instead?
g. What would the cost of a Short Butterfly on LUV stock using call options be?
h. What would the cost of a Short Butterfly on LUV stock using put options be?
The annual risk free interest rate is 5.0625%. All stocks mentioned do not pay a dividend. All options mentioned are European style. The current spot price of Southwest Airlines (LUV) is 60.00. The forward price for a 6 month forward contract on Southwest Airlines is 61.50. You have the following premiums for European style calls on Southwest Airlines (LUV) which expire in 6 months: Strike Call Premium Put Premium 57 6.20 1.81 60 3.80 2.34 63 2.65 4.11
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Create a payoff-profit table for Long Butterfly on LUV stock using call options. For the table, use spot prices in 6 months from 55 to 65 in increments of 1.