You are cautiously bullish on the common stock of the Wildwood Corporation over the next several months. The current price of the stock is $50 per share. You want to establish a bullish money spread to help limit the cost of your option position. You find the following option quotes:
-To establish a bull money spread with calls you would _______________.
A) buy the 55 call and sell the 45 call
B) buy the 45 call and buy the 55 call
C) buy the 45 call and sell the 55 call
D) sell the 45 call and sell the 55 call

Question

You are cautiously bullish on the common stock of the Wildwood Corporation over the next several months. The current price of the stock is $50 per share. You want to establish a bullish money spread to help limit the cost of your option position. You find the following option quotes: 
-To establish a bull money spread with calls you would _______________.
A) buy the 55 call and sell the 45 call 
B) buy the 45 call and buy the 55 call 
C) buy the 45 call and sell the 55 call 
D) sell the 45 call and sell the 55 call

Quizplus · Accepted Answer

To establish a bull money spread with calls, we need to buy a lower strike call option and sell a higher strike call option. This would allow us to limit the cost of our option position while still benefiting from a bullish movement in the stock. Therefore, we should buy the 45 call and sell the 55 call, which is option C.

You Are Cautiously Bullish on the Common Stock of the Wildwood