Chapter 06 · Section 6.1

Premiums-2

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. How much net premium do you receive for this position on a per share basis?

a) 3
b) -1
c) 7.70
d) 400
• e) +4
  Yes. You collect the premiums from the short puts and pay the premiums for the long puts. If you were taking a short butterfly on stock options, the premium received for the entire position would be $4 x 100 shares = $400. Continue

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