You buy a call option on Summit Corp. with an exercise price of $40 and an expiration date in September, and you write a call option on Summit Corp. with an exercise price of $40 and an expiration date in October. This strategy is called a ________.
A) time spread
B) long straddle
C) short straddle
D) money spread

Question

Quizplus · Accepted Answer

This strategy is called a time spread or calendar spread, where the investor benefits from the difference in time decay between the two options. By buying the September option and writing the October option, the investor is betting that the stock price will not move significantly in the short term but will increase over time. This allows the investor to profit from the September option while still holding on to the stock if the October option is exercised.

You Buy a Call Option on Summit Corp