The purchase of a June 25 call on XXO stock and the sale of a June 30 call on XXO stock is known as a
A)long straddle.
B)short straddle.
C)vertical spread.
D)horizontal spread.

Question

Quizplus · Accepted Answer

This is a vertical spread, specifically a bear call spread. The purchase of the June 25 call is the lower strike price and the sale of the June 30 call is the higher strike price. The investor is expecting the price of XXO stock to remain below $30, but is also limiting their potential profit by purchasing the lower strike price call.

The Purchase of a June 25 Call on XXO Stock