What Happens to the Long Position in a 90-100-110-Strike Call

question 17

Multiple Choice

What happens to the long position in a 90-100-110-strike call butterfly spread if all the calls are replaced with puts of identical strike and maturity?

• A)There is no change in the risks and cash flows of the original position.
• B)The new position is the same as holding a short position in the original call butterfly spread.
• C)The new position is the mirror image of the original one if you consider the x-axis as a mirror.
• D)The gross payoffs remain the same,but the net payoffs are different.

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Definitions:

Bargaining Power

The capability of one party in negotiations to influence the terms and conditions in their favor.

Cash Flow

The total amount of money being transferred into and out of a business, considered essential for maintaining operations and fulfilling financial commitments.

Time Frame

The period during which an event occurs or a condition exists.

Short-Term Debt

Financial obligations that are due for repayment within one year from the current date.