Series 7 practice questioneasyOptions — Credit Spreads
Which of the following is a credit spread?
- ABull call spread
- BBear put spread
- CBear call spread✓ Correct answer
- DLong straddle
Explanation
Why C — Bear call spread
A bear call spread is a credit spread because the investor writes the lower strike call (which has a higher premium) and buys the higher strike call (lower premium), resulting in a net credit. Bull put spreads are also credit spreads. Credit spreads generate premium income at initiation.
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