Manuel Silva Case Scenario

In the topic test case fact:

At the beginning of the meeting, Sampras states: “My investment in Eagle Corporation stock has increased considerably in value, and I would like suggestions on options strategies I can use to protect my gains.”

At the end of the meeting, Sampras asks Silva to provide a written analysis of the following option strategies:

Strategy A: A butterfly spread strategy using the options information provided in Exhibit 1.

Im quite confused with the answer where it suggested that Sampras should go long calls at lowest and highest exercise prices when her concern is protection of gains currently achieved.

What are the other strategies? It seems odd to suggest a butterfly structure to protect gains. Just think about the payoff figure of a butterfly. It looks much more of a structure used when you dont think the market will move a lot

well the other strategies were not really relevant to the question since they have their own set of questions.

The question isn’t whether a butterfly strategy is the right one. The question on downside protection ends when the analyst discusses protective puts and covered calls.

The next section is independent. You’re presented with three strategies. Your job is to find the max profit for the butterfly strategy. I has nothing to do with the story told so far (which is a bit confusing, I agree).