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Question 1 of 10
1. Question
Regarding vertical credit spread and vertical debit spread, which of the following statements is true?
Correct
Vertical credit spread and vertical debit spread
A vertical credit spread and a vertical debit spread are said to be mirror images of each other. Both credit and debit spreads are considered vertical because they use the same option type (call or put) in two different positions (long or short). Both are designed such that the maximum profit and loss are limited by the price range of the two option types (puts or calls). A credit spread (bull put or bear call) limits profitability to the net premium income, and it limits losses to the adverse change in price. A debit spread is a mirror image of the credit spread because it limits losses to the net premium expense, and it also limits profitability to the beneficial change in price.
Incorrect
Vertical credit spread and vertical debit spread
A vertical credit spread and a vertical debit spread are said to be mirror images of each other. Both credit and debit spreads are considered vertical because they use the same option type (call or put) in two different positions (long or short). Both are designed such that the maximum profit and loss are limited by the price range of the two option types (puts or calls). A credit spread (bull put or bear call) limits profitability to the net premium income, and it limits losses to the adverse change in price. A debit spread is a mirror image of the credit spread because it limits losses to the net premium expense, and it also limits profitability to the beneficial change in price.
Question 2 of 10
2. Question
Which of the following statements is false regarding vertical credit spread and vertical debit spread?
Correct
Vertical credit spread and vertical debit spread
A vertical credit spread and a vertical debit spread are said to be mirror images of each other. Both credit and debit spreads are considered vertical because they use the same option type (call or put) in two different positions (long or short). Both are designed such that the maximum profit and loss are limited by the price range of the two option types (puts or calls). A credit spread (bull put or bear call) limits profitability to the net premium income, and it limits losses to the adverse change in price. A debit spread is a mirror image of the credit spread because it limits losses to the net premium expense, and it also limits profitability to the beneficial change in price.
Incorrect
Vertical credit spread and vertical debit spread
A vertical credit spread and a vertical debit spread are said to be mirror images of each other. Both credit and debit spreads are considered vertical because they use the same option type (call or put) in two different positions (long or short). Both are designed such that the maximum profit and loss are limited by the price range of the two option types (puts or calls). A credit spread (bull put or bear call) limits profitability to the net premium income, and it limits losses to the adverse change in price. A debit spread is a mirror image of the credit spread because it limits losses to the net premium expense, and it also limits profitability to the beneficial change in price.
Question 3 of 10
3. Question
From the statements below regarding bull put, which one seems to be the most appropriate to you?
Correct
The trader seeks to profit from the net premium received is the appropriate statement regarding bull put.
Incorrect
The trader seeks to profit from the net premium received is the appropriate statement regarding bull put.
Question 4 of 10
4. Question
Which of the following statements is true regarding bear put?
Correct
The following statements are true regarding bear put;
A bear put is a vertical credit spread
The put reaches in the money status
Incorrect
The following statements are true regarding bear put;
A bear put is a vertical credit spread
The put reaches in the money status
Question 5 of 10
5. Question
From the statements below regarding bull call, which one seems to be the most inappropriate to you?
Correct
Bull call
A bull call is a vertical debit spread, and the trader seeks to benefit from a narrowing of the basis such that the call reaches in the money status and can be executed to offset the net commission expense.
Incorrect
Bull call
A bull call is a vertical debit spread, and the trader seeks to benefit from a narrowing of the basis such that the call reaches in the money status and can be executed to offset the net commission expense.
Question 6 of 10
6. Question
Which of the following statements is true regarding bear call?
Correct
Bear call
A bear call is a vertical credit spread, and the trader seeks to benefit from a widening of the basis. That is, the trader seeks to profit from the net premium received, and does not want the price to rise (and the basis to narrow) such that the call is exercised.
Incorrect
Bear call
A bear call is a vertical credit spread, and the trader seeks to benefit from a widening of the basis. That is, the trader seeks to profit from the net premium received, and does not want the price to rise (and the basis to narrow) such that the call is exercised.
Question 7 of 10
7. Question
Which of the following statements is true regarding bear call?
Correct
Bear call
A bear call is a vertical credit spread, and the trader seeks to benefit from a widening of the basis. That is, the trader seeks to profit from the net premium received, and does not want the price to rise (and the basis to narrow) such that the call is exercised.
Incorrect
Bear call
A bear call is a vertical credit spread, and the trader seeks to benefit from a widening of the basis. That is, the trader seeks to profit from the net premium received, and does not want the price to rise (and the basis to narrow) such that the call is exercised.
Question 8 of 10
8. Question
Which of the following statements is false regarding straddle vs. spread?
Correct
Straddle vs. spread
A spread uses a combination of put and/or calls to establish a position. The maximum gain or loss is limited because either the put or the call will effectively establish a ceiling or a floor. In contrast, a straddle and a strangle also combine a put and a call, but both are either long or short. Therefore, the maximum gain (long position) or loss (short position) can be unlimited.
Incorrect
Straddle vs. spread
A spread uses a combination of put and/or calls to establish a position. The maximum gain or loss is limited because either the put or the call will effectively establish a ceiling or a floor. In contrast, a straddle and a strangle also combine a put and a call, but both are either long or short. Therefore, the maximum gain (long position) or loss (short position) can be unlimited.
Question 9 of 10
9. Question
Regarding straddle vs. spread, which of the following statements is true?
Correct
Straddle vs. spread
A spread uses a combination of put and/or calls to establish a position. The maximum gain or loss is limited because either the put or the call will effectively establish a ceiling or a floor. In contrast, a straddle and a strangle also combine a put and a call, but both are either long or short. Therefore, the maximum gain (long position) or loss (short position) can be unlimited.
Incorrect
Straddle vs. spread
A spread uses a combination of put and/or calls to establish a position. The maximum gain or loss is limited because either the put or the call will effectively establish a ceiling or a floor. In contrast, a straddle and a strangle also combine a put and a call, but both are either long or short. Therefore, the maximum gain (long position) or loss (short position) can be unlimited.
Question 10 of 10
10. Question
From the statements below regarding straddle vs. spread, which one seems to be the most appropriate to you?
Correct
Straddle vs. spread
A long straddle or strangle will profit from extreme price volatility in either direction. The expectation is that the price differential will offset the premium paid to establish the position. A short straddle or strangle will profit from little or no volatility, and traders seek to profit from the premium received.
Incorrect
Straddle vs. spread
A long straddle or strangle will profit from extreme price volatility in either direction. The expectation is that the price differential will offset the premium paid to establish the position. A short straddle or strangle will profit from little or no volatility, and traders seek to profit from the premium received.
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