Series 7 practice questionhardOptions — Bull Call Spread Breakeven
An investor buys 1 DEF Aug 35 call at $6 and writes 1 DEF Aug 45 call at $2. At expiration, DEF is at $40. What is the profit or loss?
- AProfit of $100✓ Correct answer
- BProfit of $500
- CLoss of $100
- DLoss of $400
Explanation
Why A — Profit of $100
Net premium paid (debit) = $6 - $2 = $4. At $40, the long 35 call is worth $5 ($40 - $35), and the short 45 call expires worthless. Profit = intrinsic value - net debit = $5 - $4 = $1 per share, or $100. The breakeven was $39 ($35 + $4), and since the stock is at $40, there is a small profit.
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