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All main topics / Finance & Investment / Derivatives / Derivatives
200
20.Six-month call options with strike prices of $35 and $40 cost $6 and $4, respectively. What is the maximum gain when a bull spread is created by trading a total of 200 options?
A.$100
B.$200
C.$300
D.$400

Answer: C

The bull spread involves buying 100 calls with strike $35 and selling 100 calls with strike price $40. The cost is 6×100−4×100=$200. The maximum payoff (when the stock price is greater than or equal to $40 is $500. The maximum gain is therefore 500 −200 = $300.

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Flashcard info:
Author: CoboCards-User
Main topic: Finance & Investment
Topic: Derivatives
Published: 27.10.2015

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