Series 7 practice questioneasyOptions — Debit vs Credit Spreads
A debit spread is established when an investor:
- AReceives more premium than is paid
- BBuys options only without writing any
- CBuys and sells options with different expirations
- DPays more premium than is received✓ Correct answer
Explanation
Why D — Pays more premium than is received
A debit spread results when the premium paid for the purchased option exceeds the premium received for the written option. The investor has a net cash outflow (debit). A bull call spread and a bear put spread are common examples of debit spreads.
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