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.
Turn it into reps
Reading one answer is not the same as being ready
Lucky the Banker is a free practice app with 758+ Series 7 questions, weak-area tracking, and timed mock exams. No credit card, no paywall.
Spot an error in this question or explanation? Tell us — we fix these fast.
Related Investment Information & Recommendations questions
- An investor establishes a bear put spread by buying 1 GHI Nov 55 put at $6 and writing 1 GHI Nov 45 put at $2. What is…
- An investor establishes a bull call spread by buying 1 ABC Jun 40 call at $5 and writing 1 ABC Jun 50 call at $2. What…
- 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…
- An investor writes 1 XYZ Mar 40 put at $3. At expiration, XYZ is at $35. What is the investor's gain or loss?
- An investor writes 1 MNO Sep 40 call at $6 and buys 1 MNO Sep 50 call at $2 (bear call spread). What is the maximum…
- What is the maximum loss for a writer of an uncovered put option with a strike price of $60 and a premium of $4?
- An investor buys 1 PQR Aug 50 call at $4 and buys 1 PQR Aug 50 put at $3 (long straddle). What are the breakeven points?
- LMN stock is trading at $47. An LMN 50 put has a premium of $5. What is the intrinsic value and time value of this put?