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Flashcards in Chapter 14 Deck (135)
1

If an investor is short a call, how could that option be covered?

1) Be long 2) Own convertibles 3) Present escrow receipt 4) Own a call (lower strike, same or later expiration)

2

If an investor is short a put, how could that option be covered?

1) Deposit cash equal to the strike 2) Be short the stock 3) Own a put (higher strike, same or later expiration)

3


Identify the position: An investor sells 1 ABC May 30 call at 3 and purchases 1 ABC May 35 call at 1.

A sale and purchase of calls or puts is a spread.

4


Identify the position: An investor shorts 1 XYZ May 50 call at 3 and is long 1 XYZ May 40 call at 5.

A spread, which is the sale and purchase of calls or puts.

5

Identify the position: An investor writes 1 STC Jul 70 put at 7 and owns 1 STC Jul 60 put at 3.

A spread, which is the sale and purchase of calls or puts.

6


Identify the position: An investor buys 1 GDG Mar 50 call at 4 and buys 1 GDG Mar 50 put at 4.

A straddle, which is the purchase or sale of both a call and a put with the same stock, expiration and strike price.

7


Identify the spread: An investor buys 1 JMK May 60 call and sells 1 JMK May 65 call.

A spread with different strike prices is a Price/Vertical spread.

8


Identify the spread: An investor writes 1 ABC Jan 75 put and is long 1 ABC Mar 75 put.

A spread with different expirations is a Calendar/Horizontal spread.

9

Identify the spread: An investor is long 1 MCD Jun 50 call and is short 1 MCD Sep 60 call.

A spread with different expirations and different strikes is a Diagonal spread.

10

An investor sells 1 ABC Mar 30 call at 7 and buys 1 ABC Mar 40 call at 3. Is this a debit or credit spread?

Since the larger premium is on the sell leg, this is a credit spread, sold for a net premium of 4.

11

An investor sells 1 ABC Mar 30 call at 7 and buys 1 ABC Mar 40 call at 3. Is the investor bullish or bearish on ABC?

She is bearish. The dominant leg is the sell leg, which makes the investor the seller of a call.

12

An investor sells 1 ABC Mar 30 call at 7 and buys 1 ABC Mar 40 call at 3. What is the investor's breakeven point?

30 + 4 = 34 (always between strikes). For call spreads, the net premium is added to the lower strike (CALL UP).

13

An investor sells 1 ABC Mar 30 call at 7 and buys 1 ABC Mar 40 call at 3. What is the investor's maximum gain?

The net premium of $400. Remember, sellers cannot make more than the premium.

14


An investor sells 1 ABC Mar 30 call at 7 and buys 1 ABC Mar 40 call at 3. What is the investor's maximum loss?


$600. If the stock rises, the investor could lose starting from the breakeven of 34 up to 40.

15

True or False: Maximum gains and maximum losses could be unlimited with vertical spreads.

False. Spreads limit both gains and losses. Remember, net premium is the loss for the buyer and the gain for the seller.

16

An investor buys 1 ABC Mar 30 call at 7 and sells 1 ABC Mar 40 call at 3. Is this a debit or credit spread?

Since the larger premium is on the buy leg, this is a debit spread, bought for a net premium of 4.

17


An investor buys 1 ABC Mar 30 call at 7 and sells 1 ABC Mar 40 call at 3. Is the investor bullish or bearish on ABC?

He is bullish. The dominant leg is the buy leg, which makes the investor the buyer of a call.

18

An investor buys 1 ABC Mar 30 call at 7 and sells 1 ABC Mar 40 call at 3. What is the investor's breakeven point?

30 + 4 = 34 (always between strikes). For call spreads, the net premium is added to the lower strike (CALL UP).

19


An investor buys 1 ABC Mar 30 call at 7 and sells 1 ABC Mar 40 call at 3. What is the investor's maximum gain?


$600. If the stock rises, the investor could profit starting from the breakeven of 34 up to 40.

20

An investor buys 1 ABC Mar 30 call at 7 and sells 1 ABC Mar 40 call at 3. What is the investor's maximum loss?

The net premium of $400. Remember, buyers cannot lose more than the premium.

21

An investor is long 1 DEF Apr 35 put at 3 and short 1 DEF Apr 30 put at 1. Is this a debit or credit spread?

Since the larger premium is on the buy leg, this is a debit spread, bought for a net premium of 2.

22


An investor is long 1 DEF Apr 35 put at 3 and short 1 DEF Apr 30 put at 1. Is the investor bullish or bearish on DEF?


He is bearish. The dominant leg is the buy leg, which makes the investor the buyer of a put.

23

Long 1 DEF Apr 35 put at 3 and short 1 DEF Apr 30 put at 1. What is the breakeven point?


35 - 2 = 33 (always between strikes). For put spreads, the net premium is subtracted from the higher strike (PUT DOWN).

24

An investor is long 1 DEF Apr 35 put at 3 and short 1 DEF Apr 30 put at 1. What is the investor's maximum gain?


$300. If the stock falls, the investor could profit starting from the breakeven of 33 down to 30.

25

An investor is long 1 DEF Apr 35 put at 3 and short 1 DEF Apr 30 put at 1. What is the investor's maximum loss?


The net premium of $200. Remember, buyers cannot lose more than the premium.

26

Long 1 DEF Apr 35 put at 3 and short 1 DEF Apr 30 put at 1. To profit, should the spread widen or narrow?

If the premium spread widens, the spread can be closed for more than $200. Remember, BUYER and WIDEN have 5 letters.

27

An investor sells 1 RST May 95 put at 8 and buys 1 RST May 80 put at 1. Is this a debit or credit spread?

Since the larger premium is on the sell leg, this is a credit spread, sold for a net premium of 7.

28


An investor sells 1 RST May 95 put at 8 and buys 1 RST May 80 put at 1. Is the investor bullish or bearish on RST?


She is bullish. The dominant leg is the sell leg, which makes the investor the seller of a put.

29


She is bullish. The dominant leg is the sell leg, which makes the investor the seller of a put.

95 - 7 = 88 (always between strikes). For put spreads, the net premium is subtracted from the higher strike (PUT DOWN).

30


An investor sells 1 RST May 95 put at 8 and buys 1 RST May 80 put at 1. What is the investor's maximum gain?

The net premium of $700. Remember, sellers cannot make more than the premium.

31


An investor sells 1 RST May 95 put at 8 and buys 1 RST May 80 put at 1. What is the investor's maximum loss?


$800. If the stock falls, the investor could lose starting from the breakeven of 88 down to 80.

32

Sell 1 RST May 95 put at 8 and buy 1 RST May 80 put at 1. To profit, should the spread widen or narrow?

the premium spread narrows, much of the $700 net premium is kept. Remember, SELLER and NARROW have 6 letters.

33


An investor purchases 1 XRX May 60 call at 6 and writes 1 XRX May 70 call at 2. Is this a debit or credit spread?

Since the larger premium is on the buy leg, this is a debit spread, bought for a net premium of 4.

34


Sid purchases 1 XRX May 60 call at 6 and writes 1 XRX May 70 call at 2. Is Sid bullish or bearish on XRX?


Sid is bullish. The dominant leg is the buy leg, which makes the investor the buyer of a call.

35

An investor purchases 1 XRX May 60 call at 6 and writes 1 XRX May 70 call at 2. What is the investor's breakeven point?

60 + 4 = 64 (always between strikes). For call spreads, the net premium is added to the lower strike (CALL UP).

36

An investor purchases 1 XRX May 60 call at 6 and writes 1 XRX May 70 call at 2. What is the investor's maximum gain?


$600. If the stock rises, the investor could profit starting from the breakeven of 64 up to 70.

37


An investor purchases 1 XRX May 60 call at 6 and writes 1 XRX May 70 call at 2. What is the investor's maximum loss?

The net premium of $400. Remember, buyers cannot lose more than the premium.

38

Buy 1 XRX May 60 call at 6 and write 1 XRX May 70 call at 2. For profit, should the spread widen or narrow?

If the premium spread widens, the spread can be closed for more than $400. Remember, BUYER and WIDEN have 5 letters.

39

Sell 1 ABC May 65 put at 9 and buy 1 ABC May 50 put at 2. Is the spread a debit or credit? Is it bullish or bearish?

The larger premium is the sell leg, so it is a credit spread. The dominant leg is the sale of a put, so it is bullish.

40

Long 1 TNT Aug 50 call at 5 and short 1 TNT Aug 60 call at 2. Is the spread a debit or credit? Is it bullish or bearish?

The larger premium is on the buy leg, so it is a debit. The dominant leg is the purchase of a call, so it is bullish.

41

True or False: Buyers of straddles are seeking volatility, while sellers of straddles are expecting stability.

True

42


An investor buys 1 XYZ Dec 70 call at 4 and buys 1 XYZ Dec 70 put at 4. What are the breakeven points for the investor?


70 + 8 = 78 and 70 - 8 = 62. The combined premium of 8 is added to 70 (CALL UP) and subtracted from 70 (PUT DOWN).

43

An investor buys 1 XYZ Dec 70 call at 4 and buys 1 XYZ Dec 70 put at 4. What is the investor's maximum gain?

Unlimited gain on the long call, $6,200 gain on the long put. Gains occur if the stock rises or falls dramatically.

44


An investor buys 1 XYZ Dec 70 call at 4 and buys 1 XYZ Dec 70 put at 4. What is the investor's maximum loss?


$800. If XYZ stays at 70, both options expire. Remember, buyers cannot lose more than the premium.

45

An investor buys 1 XYZ Dec 70 call at 4 and buys 1 XYZ Dec 70 put at 4. What is the investor's strategy?

Volatility

46

An investor sells 1 ABC Jan 50 call at 2 and sells 1 ABC Jan 50 put at 3. What are the breakeven points?

50 + 5 = 55 and 50 - 5 = 45. The combined premium of 5 is added to 50 (CALL UP) and subtracted from 50 (PUT DOWN).

47


An investor sells 1 ABC Jan 50 call at 2 and sells 1 ABC Jan 50 put at 3. What is the investor's maximum gain?

$500. If ABC stays at 50, both options expire and $500 is made. Remember, sellers cannot make more than the premium.

48


An investor sells 1 ABC Jan 50 call at 2 and sells 1 ABC Jan 50 put at 3. What is the investor's maximum loss?

Unlimited loss on the short call, $4,500 loss on the short put. Losses occur if the stock rises or falls dramatically.

49


An investor sells 1 ABC Jan 50 call at 2 and sells 1 ABC Jan 50 put at 3. What is the investor's strategy?

Stability

50

A position similar to a straddle, but with different expirations and/or different strikes is called a _____________.

combination

51

An investor buys 1 DEF May 50 call at 3 and buys 1 DEF May 40 put at 1. What is this position?

Long combination

52

An investor buys 1 DEF May 50 call at 3 and buys 1 DEF May 40 put at 1. What are the breakeven points for the investor?


50 + 4 = 54 and 40 - 4 = 36. The combined premium of 4 is added to 50 (CALL UP) and subtracted from 40 (PUT DOWN).

53

An investor buys 1 DEF May 50 call at 3 and buys 1 DEF May 40 put at 1. What is the investor's maximum gain?


Unlimited gain on the long call, $3,600 gain on the long put. Gains occur if the stock rises or falls dramatically.

54


An investor buys 1 DEF May 50 call at 3 and buys 1 DEF May 40 put at 1. What is the investor's maximum loss?

$400. If DEF stays between 50 and 40, both options expire. Remember, buyers cannot lose more than the premium.

55

An investor buys 1 DEF May 50 call at 3 and buys 1 DEF May 40 put at 1. What is the investor's strategy?

volatility

56


An investors sells 1 BBO Jan 70 call at 4 and sells 1 BBO Jan 65 put at 2. What is this position?

short combination

57

An investors sells 1 BBO Jan 70 call at 4 and sells 1 BBO Jan 65 put at 2. What are the breakeven points?


70 + 6 = 76 and 65 - 6 = 59. The combined premium of 6 is added to 70 (CALL UP) and subtracted from 65 (PUT DOWN).

58

An investors sells 1 BBO Jan 70 call at 4 and sells 1 BBO Jan 65 put at 2. What is the investor's maximum gain?

$600. If BBO remains between 70 and 65, both options expire and the seller makes the $600 total premium.

59

An investors sells 1 BBO Jan 70 call at 4 and sells 1 BBO Jan 65 put at 2. What is the investor's maximum loss?

Unlimited loss on the short call, $5,900 loss on the short put. Losses occur if the stock rises or falls dramatically.

60

An investors sells 1 BBO Jan 70 call at 4 and sells 1 BBO Jan 65 put at 2. What is the investor's strategy?

stability

61

True or False: To hedge a stock position, buying options provides more protection than writing options.

True. When long stock, investors may buy a put. When short stock, investors may buy a call.

62

Investors wishing to generate income on a stock position should ______ an option.

sell

63

True or False: An investor who is long 100 shares of ABC stock and long an ABC put is bearish on the stock.

False. The purchase of the put is designed to protect against downward price movement.

64

True or False: Covered call writing is a conservative option strategy designed to generate income.

True

65

What is a covered call position?

The sale of a call (obligation to sell) against stock that is owned

66


An investor buys 100 shares of IBM at 91 and also 1 IBM Nov 90 put at 2. Is the investor bullish or bearish on IBM?

Bullish since they are long the stock. The put is purchased to protect downside risk.

67


An investor buys 100 shares of IBM at 91 and also 1 IBM Nov 90 put at 2. What is the investor's breakeven point?

91 + 2 = 93 (cost of the stock + premium paid)

68


An investor buys 100 shares of IBM at 91 and also 1 IBM Nov 90 put at 2. What is the investor's maximum gain?

Unlimited, since the stock's upside is infinite

69

Buy 100 shares of IBM at 91 and also Buy 1 IBM Nov 90 put at 2. If IBM later falls to 84, what is the maximum loss?

$300. At exercise, the stock bought at 91 can be sold at 90 ($100 loss) plus the cost of the option ($200 loss).

70

An investor sells short 100 XYZ at 47 and buys 1 XYZ Nov 50 call at 3. Is the investor bullish or bearish on XYZ?

Bearish since the investor is short the stock. The call is purchased to protect upside risk.

71

An investor sells short 100 XYZ at 47 and buys 1 XYZ Nov 50 call at 3. What is the investor's breakeven point?

47 - 3 = 44 (short sale proceeds - the premium paid)

72

An investor sells short 100 XYZ at 47 and buys 1 XYZ Nov 50 call at 3. What is the investor's maximum gain?


If the stock falls to zero, the investor could potentially make $4,400 ($4,700 - the $300 premium).

73


Al sells short 100 XYZ at 47 and buys 1 XYZ Nov 50 call at 3. What is Al's maximum loss?

$600. If XYZ rises, Al can buy stock back at 50 ($300 loss), plus he would lose the premium ($300 loss).

74


If investors have a stock position AND an option position, will strategy be determined by the stock or the option?

The stock position is the primary focus since gains or losses are determined by the stock's movements.

75


An investor buys 100 shares of RST at 30 and sells 1 RST Oct 35 call at 2. What's the reason for selling the call?


To provide premium income on stable stock. Also note the premium provides a partial hedge against downside risk.

76


An investor buys 100 shares of RST at 30 and sells 1 RST Oct 35 call at 2. What is the investor's breakeven point?

30 - 2 = 28 (cost of the stock - the premium received)

77


An investor buys 100 shares of RST at 30 and sells 1 RST Oct 35 call at 2. What is the investor's maximum gain?

$700. If the stock rises and the call is exercised, the 30 stock is sold at 35 ($500 gain) plus the premium ($200 gain).

78


An investor buys 100 shares of RST at 30 and sells 1 RST Oct 35 call at 2. What is the investor's maximum loss?

$2,800 if the stock falls to zero. The investor would lose $3,000 on the stock, but keep the $200 premium.

79

An investor sells short 100 shares of MNO at 35 and sells 1 MNO Jan 30 put at 3. What's the reason for selling the put?

To generate income (the premium); also note the premium provides a partial hedge against upside risk.

80

An investor sells short 100 shares of MNO at 35 and sells 1 MNO Jan 30 put at 3. What's the investor's breakeven point?

35 + 3 = 38 (short sale proceeds + premium received)

81


An investor sells short 100 shares of MNO at 35 and sells 1 MNO Jan 30 put at 3. What is the investor's maximum gain?

$800. If stock falls and the put is exercised, the short stock is covered at 30 ($500 gain) plus premium ($300 gain).

82


An investor sells short 100 shares of MNO at 35 and sells 1 MNO Jan 30 put at 3. What's the investor's maximum loss?


Unlimited. The investor has no protection if the stock continues to rise above the 38 breakeven.

83

Which has unlimited risk? 1) Long stock + short call, 2) Short stock + long call, 3) Short stock + short put

3) Short stock + short put

84

Sell 1 BKS July 40 call at 6 and buy 1 Oct 40 call at 10. Is the spread vertical or horizontal? Is it a debit or credit?


This is a horizontal spread (different expirations) and it is a debit spread (paid out more than what was received).

85

Buy 1 STP Jan 50 call at 6 and sell 1 Jan 60 call at 2. STP is at 59 and options are closed at intrinsic value. Result?


A gain of $500. Initially there is a net debit of 4, and later offset for a net credit of 9 (9 - 4 = 5).

86

If long stock, a put option can be used to limit ___________ risk.

downside

87


If short stock, a call option can be used to limit _________ risk.

upside

88

What is the breakeven point? Buy 100 shares of XYZ at 46 and Buy 1 XYZ Jan 50 Put at 6.75

The breakeven point is cost of the stock + premium = 52.75

89

What is the maximum profit? Buy 100 shares of RFQ at 56 and Buy 1 RFQ Feb 55 Put at 5.75

The maximum profit is unlimited

90

What is the maximum risk? Buy 100 shares of XYZ at 95 and Buy 1 XYZ Mar 90 Put at 7.00

The maximum risk is cost of the stock + premium - the strike price= 1200.00

91

What is the breakeven point? Sell Short 100 shares of MNO at 82 and Buy 1 MNO Apr 80 Call at 8.00

The breakeven point is short sale price - premium = 74.00

92

What is the maximum gain? Sell Short 100 shares of XYZ at 50 and Buy 1 XYZ May 55 call at 7.00

The maximum gain is proceeds of the short sale - premium = 4300.00

93

What is the maximum loss? Sell Short 100 shares of RFQ at 54 and Buy 1 RFQ June 50 Call at 7.50

The maximum loss is the strike price + premium - the proceeds of the short sale = 350.00

94

What is the breakeven point? Buy 100 shares of XYZ at 55 and Write 1 XYZ July 60 Call at 9.00

The breakeven point is cost of the stock - premium = 46.00

95

What is the maximum profit if the option is exercised? Buy 100 shares of RFQ at 80 and Sell 1 RFQ Aug 80 Call at 5.50

The maximum profit is the strike price + premium - cost of stock = $550.00

96

What is the maximum risk? Buy 100 shares of MNO at 56 and Write 1 MNO Sep 60 Call at 5.50

The maximum risk is the cost of stock - premium = $5050.00

97

What is the breakeven point? Sell Short 100 shares of XYZ at 55 and Sell 1 XYZ Oct 55 Put at 8.25

The breakeven point is stock price + premium = 63.25

98

What is the maximum risk? Sell Short 100 shares of RFQ at 92 and Write 1 RFQ Nov 95 Put at 7.00

unlimited

99

What is the breakeven point? Buy 1 XYZ Dec 110 Call at 7.50 and write 1 XYZ Dec 120 Call at 3.50

The breakeven point is lower strike price + net premium = 114.00

100

What is the maximum gain? Buy 1 XYZ Dec 75 Call at 12.75 and write 1 XYZ Dec 90 Call at 4.50

The maximum gain is the difference in the strikes - net premium = 6.75

101

What is the maximum loss? Buy 1 XYZ Dec 30 Call at 3.50 and write 1 XYZ Dec 35 Call at 1.75

The maximum loss is the net premium = 175.00

102

What is the breakeven point? Sell 1 XYZ Dec 70 Call at 6.50 and buy 1 XYZ Dec 80 Call at 3.50

The breakeven point is lower strike price + net premium = 73.00

103

What is the maximum gain? Sell 1 XYZ Dec 40 Call at 4.00 and buy 1 XYZ Dec 45 Call at 1.00

The maximum gain is the net premium = 300.00

104

What is the maximum loss? Sell 1 XYZ Dec 120 Call at 4.25 and buy 1 XYZ Dec 125 Call at 1.75

The maximum loss is the difference in the strikes - net premium = 250.00

105

What is the breakeven point? Buy 1 ABC Nov 90 Put at 3.50 and write 1 ABC Nov 85 at 1.75

The breakeven point is higher strike price - net premium = 88.25

106

What is the maximum gain? Buy 1 ABC Nov 95 Put at 9.75 and write 1 ABC Nov 80 at 4.50

The maximum gain is the difference in the strikes - net premium = 975.00

107

What is the maximum loss? Buy 1 ABC Nov 100 Put at 8.50 and write 1 ABC Nov 90 at 3.00

The maximum loss is the net premium = 550.00

108

What is the breakeven point? Sell 1 ABC Nov 80 Put at 9.75 and buy 1 ABC Nov 65 at 4.50

The breakeven point is higher strike price - net premium = 74.75

109

What is the maximum gain? Sell 1 ABC Nov 40 Put at 8.50 and buy 1 ABC Nov 30 at 3.50

The maximum gain is the net premium = 500.00

110

What is the maximum loss? Sell 1 ABC Nov 60 Put at 12.75 and buy 1 ABC Nov 45 at 4.50

The maximum loss is the difference in the strikes - net premium = 675.00

111

What are the breakeven points? Buy 1 XYZ Dec 90 Call at 7.75 and buy 1 XYZ Dec 90 Put at 8.75

The breakeven points are the strike plus the total premium and the strike minus the total premium = 106.50 AND 73.50

112

What is the maximum gain? Buy 1 XYZ Dec 65 Call at 6.00 and buy 1 XYZ Dec 65 Put at 7.75

unlimited

113

What is the maximum gain? Buy 1 XYZ Dec 65 Call at 6.00 and buy 1 XYZ Dec 65 Put at 7.75

The maximum loss is the premium = 1100.00

114

What are the breakeven points? Write 1 XYZ Dec 85 Call at 2.75 and write 1 XYZ Dec 85 Put at 4.75

The breakeven points are the strike plus the total premium and the strike minus the total premium = 92.50 AND 77.50

115

What is the maximum gain? Write 1 XYZ Dec 90 Call at 5.00 and sell 1 XYZ Dec 90 Put at 1.25

The maximum gain is the total premium = 625.00

116

What is the maximum loss? Sell 1 XYZ Dec 70 Call at 6.75 and sell 1 XYZ Dec 70 Put at 1.25

unlimited

117

What are the breakeven points? Buy 1 XYZ Dec 95 Call at 3.00 and buy 1 XYZ Dec 85 Put at 1.00

The breakeven points are the call's strike plus the total premium and the put's strike minus the total premium = 99.00 AND 81.00

118

What is the maximum gain? Buy 1 XYZ Dec 85 Call at 5.00 and buy 1 XYZ Dec 70 Put at 5.00

unlimited

119

What is the maximum loss? Buy 1 XYZ Dec 50 Call at 1.00 and buy 1 XYZ Dec 45 Put at 4.75

The maximum loss is the total premium: 575.00

120

True or False: A spread consists of both a call and a put.

False. A spread consists of either two calls or two puts.

121

True or False: A spread consists of both a long and short option position.

True. A spread consists of either a long call and short call or a long put and short put.

122

Given the same expiration months and no premiums, how is the more valuable option in a call spread identified?

The call option with the lower strike price is always more valuable.

123

Given the same expiration months and no premiums, how is the more valuable option in a put spread identified?

The put option with the higher strike price is always more valuable.

124

True or False: A straddle consists of a long and short option position.

False. A straddle consists of either a long call and long put or a short call and a short put.

125

True or False: A combination contains two calls or two puts.

False. A combination, as with a straddle, consists of one call and one put.

126

Joe sells 1 ABC Oct 55 call. To create a debit call spread, Joe buys 1 ABC Oct call with a strike price that is ______.

lower

127

Jill buys 1 XYZ Jun 70 put. To create a credit put spread, Jill sells 1 XYZ Jun put with a strike price that is _______.

higher

128

Joe sells 1 RFQ May 40 call. To create a credit call spread, Joe buys 1 RFQ May call with a strike price that is ______.

higher

129

Jill buys 1 STC Nov 85 put. To create a debit put spread, Jill sells 1 STC Nov put with a strike price that is ______.

lower

130

Ken buys 1 ABC Dec 75 call. To create a long straddle, Ken must _____________________.

Ken must buy 1 ABC Dec 75 put

131

Sue sells 1 XYZ Jan 50 put. To create a short straddle, Sue must _______________________.

Sue must sell 1 XYZ Jan 50 call

132

Sell 1 ABC Mar 30 call at 7 and buy 1 ABC Mar 40 call at 3. For profit, should the spread widen or narrow?

If the premium spread narrows, much of the $400 net premium is kept. Remember, SELLER and NARROW have 6 letters.

133

Buy 1 ABC Mar 30 call at 7 and sell 1 ABC Mar 40 call at 3. For profit, should the spread widen or narrow?

If the premium spread widens, the spread can be closed for more than $400. Remember, BUYER and WIDEN have 5 letters.

134


A date spread is synonymous with a __________ spread.

horizontal spread

135

Identify the spread: Sell 1 STC Sept 50 call and Purchase 1 STC June 50 call

horizontal spread