Series 7 practice questionmediumOptions — Bear Call Spread
An investor establishes a bear call spread by writing 1 JKL Dec 50 call at $5 and buying 1 JKL Dec 60 call at $2. What is the maximum gain?
- A$200
- B$700
- C$500
- D$300✓ Correct answer
Explanation
Why D — $300
A bear call spread is a credit spread. The maximum gain is the net premium received: $5 - $2 = $3 per share, or $300 per contract. This occurs when both options expire out-of-the-money (stock at or below $50 at expiration). The investor keeps the full net credit.
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