Products & RisksQuestion 33 of 125
An investor who is bullish on a stock but wants to limit the cost of the position could establish a:
a.Debit call spread (buy a lower-strike call, sell a higher-strike call)
b.Long straddle
c.Short put with no other position
d.Credit call spread
Explanation
A debit call spread (bull call spread) involves buying a call and selling a higher-strike call, producing a net debit. It profits from a moderate rise in the underlying while capping both cost and maximum gain, making it a lower-cost bullish strategy than buying a call outright.
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Related questions on this topic
- An investor writes (sells) 1 uncovered XYZ call with a 50 strike for a premium of 3. The maximum potential loss is:
- An investor buys 1 XYZ put with a 40 strike for a premium of 2. What is the maximum gain on this long put?
- An investor buys 1 XYZ put with a 40 strike for a premium of 2. What is the breakeven point at expiration?
- An investor buys 1 XYZ 50 call for 5 and sells 1 XYZ 60 call for 2. What is the maximum gain on this spread?
- Using the same spread (buy 1 XYZ 50 call for 5, sell 1 XYZ 60 call for 2), what is the maximum loss?
- A long straddle consists of:
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