Series 7 practice questionmediumOptions — Calendar Spread
An investor buys 1 XYZ Oct 50 call and writes 1 XYZ Jul 50 call. This is an example of a:
- AVertical spread
- BStraddle
- CDiagonal spread
- DCalendar (horizontal/time) spread✓ Correct answer
Explanation
Why D — Calendar (horizontal/time) spread
A calendar spread (also called a horizontal or time spread) involves buying and writing options of the same type and strike price but with different expiration dates. The investor profits from the faster time decay of the near-term option relative to the longer-term option.
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