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    Trading strategies involving options

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    Suppose that the price of a non-dividend paying stock is $32, its volatility is 30%, and the risk-free rate for all maturities is 5% per annum. Use derivagem to calculate the costs of setting up the following positions. In each case provide a table showing the relationship between the profit and final stock price. Ignore the impact of discounting.

    a) A bull spread using European call options with strike prices of $25 and $30 and a maturity of 6 months
    b) A bear spread using European put options with strike prices of $25 and $30 and a maturity of 6 months
    c) A butterfly spread using European call options with strike prices of $25, $30 and $35 and a maturity of 1 year
    d" A butterfly spread using european put options with strike prices of $25, $30 and $35 and a maturity of one year-
    e) A straddle using options with a strike price of $30 and a 6-month maturity
    e) A strangle using options with a strike prices of $25 and $35 and a 6-month maturity

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    https://brainmass.com/statistics/normal-distribution/trading-strategies-involving-options-182108

    Solution Summary

    The solution provides a table showing the relationship between the profit and final stock price for the following: bull spread using European call options, bear spread using European put options, butterfly spread using European call options, butterfly spread using european put options, straddle using options, strangle using options.

    $2.19

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