Series 7 practice questionmediumOptions — Bull Call Spread
An investor establishes a bull call spread by buying 1 DEF Oct 30 call at $4 and writing 1 DEF Oct 35 call at $1. What is the maximum loss?
- A$100
- B$200
- C$300✓ Correct answer
- D$500
Explanation
Why C — $300
The maximum loss on a bull call spread is the net premium paid (the net debit). Net premium: $4 paid - $1 received = $3 per share, or $300 per contract. This occurs if both options expire out-of-the-money (stock at or below $30 at expiration). The breakeven is $30 + $3 = $33.
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