Question

"A customer who is long 1 ABC Jan 40 Call wishes to create a "bear call spread." The second option position that the customer must take is:"

Answer 1

Answer:

Short 1 ABC Jan 30 Call

Explanation:

Investors create a "bear call spread" by first purchasing a call option at a certain price (in this case 40), and then selling an equal amount of calls with a lower price (in this case 30). Both call options expire must expire at the same date. The investors will do this because they believe that the price of an asset will decrease, that is why it is called a bear spread.