Which Option Strategy Is the Combination of a Long Call

question 12

Multiple Choice

Which option strategy is the combination of a long call with a low exercise price and a short call with a high exercise price?

• A)Buy and write
• B)Bull spread
• C)Bear spread
• D)Long straddle
• E)Short straddle

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Definitions:

Straight-Line Method

A way of calculating depreciation by evenly spreading the cost of an asset over its useful life.

Premium Amortization

The gradual reduction of the premium paid above the face value of a bond, allocated over the life of the bond.

Bond Premium

The difference between the selling price of a bond and the bond’s face value when the bond is sold for more than par.

Effective-Interest Amortization

A method of amortizing a bond discount or bond premium that reflects the effective interest rate a company pays bondholders over the life of a bond.