Three month European put options with strike prices of $50, $55, and $60 cost $2, $4, and $7, respectively

Business Sep 02, 2020

Three month European put options with strike prices of $50, $55, and $60 cost $2, $4, and $7, respectively.

(a) What is the maximum gain when a butterfly spread is created from the put options?
(b) What is the maximum loss when a butterfly spread is created from the put options?
(c) For what two values of S(T) does the holder of the butterfly spread breakeven, where S(T) is the stock price in three months?

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