Chapter 06 · Section 6.1

Premiums-1

PUTS

100 .60/share
110 3.70/share
120 10.80/share

Suppose that you wanted to construct a short butterfly spread using these options. Would you receive a net premium or pay a net premium for the spread?

• a) pay a net premium
  No. You write a 100 and a 120 option and buy two 110 options. Comparing the prices of these three options, you can see that the income received outweighs the income paid. You receive a net premium.
  b) receive a net premium

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