A butterfly spread is an options strategy combining bull and bear spreads, with a fixed...
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A butterfly spread is an options strategy combining bull and bear spreads, with a fixed risk and capped profit. These spreads, involving either four calls, four puts or a combination, are intended as a market-neutral strategy and pay off the most if the underlying does not move prior to option expiration. You have set up a butterfly spread on IBM stock by writing (selling) two call options at strike price $150, and also buying one call at strike price $130 and buying another call at strike price $170. On maturity date the price of IBM is $157.8. What is your net payoff on maturity date? Only maturity date payoffs, you do not have to consider the money you received and paid in setting up the butterfly spread. If your answer is negative, for example -20, then enter it as -20 rather than something else like (20).
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