Question

An ABC 40 call is quoted at 4.25 - 4.50, and an ABC 45 call is quoted at 1.50 - 2.00. What is the cost of establishing a debit spread

Answer 1

$300

Step-by-step explanation:

Calculation to the cost of establishing a debit spread

Based on the information given in order to establish a debit spread we were told that the investor bought a 40 call at the ask price of the amount of $4.50 in which the investor also sells a 45 call at the bid price of the amount of $1.50 which means that we are going to calculate the net premium of the amount that was paid in order for us to know the cost of establishing a debit spread

Hence,

Net premium= ($4.50 - $1.50) × 100 shares

Net premium=$3×100 shares

Net premium=$300

Therefore the cost of establishing a debit spread is $300