solution
solution.
Look at the following information. (Consider both call and put spreads).
|
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Qty |
Bid |
Ask |
|
Invesco QQQ Trust ETF |
$399.61 |
$399.63 |
|
|
QQQ 14 JAN 2022 405 CALL |
X |
$0.44 |
$0.45 |
|
QQQ 14 JAN 2022 410 CALL |
X |
$0.07 |
$0.10 |
|
QQQ 14 JAN 2022 415 CALL |
X |
$0.01 |
$0.04 |
|
QQQ 14 JAN 2022 390 PUT |
X |
$0.35 |
$0.36 |
|
QQQ 14 JAN 2022 385 PUT |
X |
$0.17 |
$0.19 |
|
QQQ 14 JAN 2022 380 PUT |
X |
$0.10 |
$0.12 |
a. If you decide to enter into 10 long butterfly spread, how would it be structured, and what would the potential profit or loss be?
b. What is the spread’s profit-to-loss ratio?
c. How much margin (buying power) does this position require?
d. What are the breakeven points?
e. If there is a 90% chance that the stock’s value will fall outside the breakeven points for the spread, what is the expected return?
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