Series 7 practice questionmediumOptions — Spread Identification
An investor buys 1 XYZ Jul 40 call and writes 1 XYZ Jul 50 call. This is which type of spread?
- ABear call spread
- BBull call spread✓ Correct answer
- CCalendar spread
- DDiagonal spread
Explanation
Why B — Bull call spread
This is a bull call spread (also called a debit call spread). The investor buys the lower strike call and writes the higher strike call, both with the same expiration. The position profits when the stock rises. The investor is net long (bullish) because the lower strike call is more expensive.
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