A stock price is currently $23. A butterfly spread (ie. options are bought with strike prices of K₁ and K3, and two options with the middle strike price K₂ are sold) is created from call options with strike prices of $20, $25, and $30. Which of the following is TRUE? Select one alternative: O It is incorrect to assume that there is always a gain when the stock price is greater than $30 or less than $20. O The loss when the stock price is greater than $30 is the same as the loss when the stock price is less than $20. O The gain when the stock price is greater than $30 is greater than the gain when the stock price is less than $20. O The gain when the stock price is greater than $30 is less than the gain when the stock price is less than $20.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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A stock price is currently $23. A butterfly spread (ie. options are bought with strike prices of K₁ and K3, and two
options with the middle strike price K₂ are sold) is created from call options with strike prices of $20, $25, and $30.
Which of the following is TRUE?
Select one alternative:
O It is incorrect to assume that there is always a gain when the stock price is greater than $30 or less than $20.
O The loss when the stock price is greater than $30 is the same as the loss when the stock price is less than $20.
The gain when the stock price is greater than $30 is greater than the gain when the stock price is less than
$20.
O The gain when the stock price is greater than $30 is less than the gain when the stock price is less than $20.
Transcribed Image Text:A stock price is currently $23. A butterfly spread (ie. options are bought with strike prices of K₁ and K3, and two options with the middle strike price K₂ are sold) is created from call options with strike prices of $20, $25, and $30. Which of the following is TRUE? Select one alternative: O It is incorrect to assume that there is always a gain when the stock price is greater than $30 or less than $20. O The loss when the stock price is greater than $30 is the same as the loss when the stock price is less than $20. The gain when the stock price is greater than $30 is greater than the gain when the stock price is less than $20. O The gain when the stock price is greater than $30 is less than the gain when the stock price is less than $20.
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