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:

Ignoring commissions, the cost to establish the bull money spread with calls would be ________.
A) $1,050
B) $650
C) $400
D) $400 income rather than cost

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:

Ignoring commissions, the cost to establish the bull money spread with calls would be ________.

Ignoring commissions, the cost to establish the bull money spread with calls would be ________.
A) $1,050 
B) $650 
C) $400 
D) $400 income rather than cost

Quizplus · Accepted Answer

To establish a bull money spread with calls, you would buy the 45 call at a cost of $8.50 and write the 55 call, earning the $2 premium. The initial cost is ($2 − $8.50)(100) = −$650.

You Are Cautiously Bullish on the Common Stock of the Wildwood