I have a question regarding the butterfly spread, in calculating the maximum profit why do not we subtract strike price of higher call.
Max profit is at the tip of the upsidedown V… which is the short calls. You subtract you debit from the spread!!!
The cost is the cost of a call at Xlow plus a cost of the call at Xhigh less the cost of two calls at Xmiddle.
Or, the cost is the cost of a put at Xlow plus the cost of a put at Xhigh less the cost of two puts at Xmiddle.
The maximum profit is the maximum payoff (which occurs at Xmiddle) less the cost. One hundred percent of the cost.