Series 7 practice questionmediumOptions — Bear Call Spread
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 loss?
- A$400
- B$600✓ Correct answer
- C$1,000
- D$200
Explanation
Why B — $600
Maximum loss on a bear call spread is the difference between strike prices minus the net premium received. Strike difference: $50 - $40 = $10. Net premium received: $6 - $2 = $4 (credit). Maximum loss: $10 - $4 = $6 per share, or $600. This occurs when the stock rises above both strike prices.
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