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.

Question

Quizplus · Accepted Answer

The risks and cash flows remain unchanged because of put-call parity, which states that a call and a put with the same strike and expiration can be interchanged by adjusting the cash flows.

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