If you were to purchase an October option with an exercise price of 50 for $8 and simultaneously sell an October option with an exercise price of 60 for $2, you would be
A) bullish and taking a high risk.
B) bullish and conservative.
C) bearish and taking a high risk.
D) bearish and conservative.
E) neutral.

Question

Quizplus · Accepted Answer

This strategy is known as a bull call spread, which involves buying a call option with a lower strike price (in this case, 50) and selling a call option with a higher strike price (in this case, 60). The goal is to profit from a moderate increase in the price of the underlying asset. It is considered a bullish strategy because it benefits from a rise in the asset's price, but it is also conservative because the premium received from selling the higher strike call option reduces the overall cost of the trade, thus limiting the maximum loss compared to buying a single call option outright.

If You Were to Purchase an October Option with an Exercise