Last question in butterfly spread,

max loss per contract = 70.

they then multiply it by 100. I don;t know why they multiplied it with 100. where is the relavent info for this multiplication?

thanks,

Last question in butterfly spread,

max loss per contract = 70.

they then multiply it by 100. I don;t know why they multiplied it with 100. where is the relavent info for this multiplication?

thanks,

i think it says multiplier $100 in the Exhibit heading…

it does in exhibit 2 for Valentine but not for Chen.

Below is what detail given for Chen.

Kung Chen expects the tracking stock on the SPDR Dow Jones Industrial Average ETF (symbol: DIA) to trade within a narrow range around its current price over the near term. On the basis of this expectation, he believes a profitable trading opportunity is to initiate a butterfly spread strategy using call options on DIA. Osborne suggests using three one-month call options on the DJIA. Chen initiates a butterfly spread using a total of 200 long contracts and 200 short contracts. Exhibit 3 illustrates current DJIA call options expiring in one month.

**Exhibit 3**

**DJIA Call Options Expiring in One Month**

The answers are:

Maximum loss per contract = c1 – 2c2 + c3 = [$4.20 – (2 × $2.00) + $0.50] × **100** = $0.70 × **100** = $70

To find the maximum loss at expiration for Chen’s spread strategy, multiply the per contract payoff by **100** , or $70 × **100** = $7,000.

I understand the reason to multiple by 100 contracts. But the maximum loss per contract need to be multiplied by 100? Why?

I think they multiply by 100 because 100 is a lot. The minimum number of options you can purchase. However you know you calculated correctly if you reach some of given solution quotient of 100.

100 isn’t so much.

But 1,000 . . . now that’s _ **a lot** _!

Fine. S2000, thanks for information.

thank you. we must assume each contract contains 100 options.

I was in an odd mood last night (or, rather, very early this morning).

I was thinking of this:

Hahaa…I know for this movie since schooldays in 80s.

But, in fact a lot is 100 options, isn’t it?