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This assignment is for butterfly spreads and can and should be completed on the uploaded word document. Please fill out the entire worksheet and for the multiple choice answers just highlight the correct answer.
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PRACTICE PROBLEMS – BUTTERFLY SPREADS
QUOTES FOR QQQ CALL OPTIONS – CURRENT ETF PRICE: 367.71 EXP: 12/1/2023
ASK
BID
THETA
GAMMA
DELTA
OPEN INT
17.22
17.01
-.15
.01
.77
6,752
13.29
12.54
-.16
.02
.70
1,371
10.22
10.43
-.16
.02
.62
1,055
9.75
9.56
-.16
.02
.60
4,184
8.05
8.10
-.16
.02
.56
262
7.81
7.76
-.16
.02
.54
3,359
7.23
7.18
-.16
.02
.52
2,587
6.67
6.63
-.15
.02
.49
2,674
4.27
4.23
-.14
.02
.38
2,189
2.52
2.49
-.11
.02
.26
1,732
STRIKE
355
360
364
365
367.5
368
369
370
375
380
1a. Using the information above, create a long butterfly with the body of the spread being the
ATM call.
STRIKE
ASK
BID
UPPER B/E POINT:
QTY
BTO PRICE
STO PRICE
MAX PROFIT
MAX LOSS
LOWER B/E POINT:
1b. Now create a long butterfly spread, two strikes away from the ATM body:
STRIKE
ASK
BID
UPPER B/E POINT:
QTY
BTO PRICE
STO PRICE
MAX PROFIT
MAX LOSS
LOWER B/E POINT:
1c. Now create a long butterfly spread, three strikes away from the ATM body:
STRIKE
ASK
BID
UPPER B/E POINT:
QTY
BTO PRICE
STO PRICE
MAX PROFIT
MAX LOSS
LOWER B/E POINT:
1d. Now create a long butterfly spread, three strikes away from the ATM body:
STRIKE
ASK
BID
QTY
BTO PRICE
STO PRICE
MAX PROFIT
MAX LOSS
UPPER B/E POINT:
LOWER B/E POINT:
1d. Now create a long butterfly spread, four strikes away from the ATM body:
STRIKE
ASK
BID
QTY
BTO PRICE STO PRICE MAX PROFIT
UPPER B/E POINT:
MAX LOSS
LOWER B/E POINT:
2a-d. Use the same strikes as Problem 1, but create a short butterfly:
STRIKE
ASK
BID
UPPER B/E POINT:
STRIKE
ASK
ASK
BID
ASK
UPPER B/E POINT:
STO PRICE
MAX PROFIT
MAX LOSS
QTY
BTO PRICE
STO PRICE
MAX PROFIT
MAX LOSS
STO PRICE
MAX PROFIT
MAX LOSS
STO PRICE
MAX PROFIT
MAX LOSS
LOWER B/E POINT:
BID
UPPER B/E POINT:
STRIKE
BTO PRICE
LOWER B/E POINT:
UPPER B/E POINT:
STRIKE
QTY
QTY
BTO PRICE
LOWER B/E POINT:
BID
QTY
BTO PRICE
LOWER B/E POINT:
3. The wider the “wings” of the butterfly, the (greater/lesser) the return and the (wider/narrower)
the range of profitability.
4. The answer to Prob. 3 is the (same/different) for short butterflies.
5. Short butterflies have a net (debit/credit) whereas long butterflies have a net (debit/credit).
6. Butterfly spreads assume a trending market.
a. True
b. False
7. Short butterflies are profitable when volatility is expected.
a. True
b. False
8. For narrowly constructed long butterfly spreads, profits tend to be very large but unlikely and
losses very small and likely.
a. True
b. False
9. For narrowly constructed short butterfly spreads, profits tend to be very large but unlikely and
losses very small and likely.
a. True
b. False
10. An “iron butterfly” is a butterfly that is composed of both calls and puts.
a. True
b. False_____________
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