Question

You buy a call option on Merritt Corp. with an exercise price of $45 and an expiration date in July, and you write a call option on Merritt Corp. with an exercise price of $50 and an expiration date in July. This is called a ________.

Answer 1

money spread

Step-by-step explanation:

In options trading, spread positions can be entered when a trader buys and sells equal number of of options of the same class on the same underlying security but with different strike prices or expiration dates. Now when trader does spreads that involve options of the same underlying security, same expiration month, but at different strike prices we call that Money spread.

Merrit Corp. is practicing money spread seeing that they buy a call option at $45 that expires in July and write a call option that also expires in July.

Answer 2

Money spread

Step-by-step explanation:

Money spread involves a combination of buying an option and selling another option similar to the one bought except for striking price. When the two options are exercised like in this case, the investor profits from the difference between the striking prices which are $45 and $50 in this case. It is also called price spread or strike spread. The only difference between the buying of one option and the sale of another identical option in the striking price.