Final answer:
The customer has created a debit spread for a cost of $400, which will be profitable if the price of STC stock increases (option B). The spread involves buying a call option at a lower strike price and selling a call option at a higher strike price, leading to a net outflow of funds.
Step-by-step explanation:
When the customer sells an STC July 40 listed call for a $6 premium and buys an STC July 30 listed call for $10, they have created a debit spread. A debit spread is when an investor simultaneously buys and sells options of the same class and expiration but with different strike prices. The cost of the spread is the difference between the premiums of the two options multiplied by the number of shares each contract represents (usually 100 shares per contract).
In this situation, the customer bought a call for $10 premium and sold a call for $6 premium, which results in a net cost of $4 ($10 - $6) per share. Since each option contract typically represents 100 shares, the total cost of the spread is $400 (100 shares × $4 spread per share). This is a debit as it results in a net outflow of funds from the customer's account.
The spread will be profitable if the price of STC increases, as the value of the lower strike call bought for $10 would increase more than the loss in value of the higher strike call sold for $6. Therefore, the correct answer is B) A debit spread executed for a cost of $400 which will be profitable if the price of STC increases.