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Business, 21.06.2020 03:57 shorty1619

An iron butterfly, also known as the ironfly, is the name of an advanced, neutral-outlook options trading strategy that involves buying and holding four different options at three different strike prices. Suppose you construct an iron butterfly position on Blackrock stock as follows, with Blackrock stock currently trading at $400. All options have an expiration date of one year from today and the constant a > 0. 1. Long one out-of-the-money put option with premium $5 and strike price of 400 – a.
2. Short one at-the-money put with premium $35.
3. Short one at-the-money call with premium $45.
4. Long one out-of-the-money call with with premium $15 and strike price of 400 +a.
A. Draw the profit diagram at expiration for the Blackrock iron butterfly, with the constant a as a free parameter, assuming the risk-free interest rate is zero.
B. What is the mnimum possible A expiration for the Blackrock iron butterfly, expressed in terms of the parameter a? For a doer an arbitrage opputunity exst, for what range of values?

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An iron butterfly, also known as the ironfly, is the name of an advanced, neutral-outlook options tr...
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