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NISM Certifications · NISM-Series-VIII: Equity Derivatives · Strategies using Equity Futures and Equity Options

An investor expects a stock to rise moderately and buys a call with strike Rs 100 at a premium of Rs 8 while selling a call with strike Rs 110 at a premium of Rs 3, same expiry. What is the maximum loss per share on this bull call spread?

The maximum loss is Rs 5 per share. It equals the net premium paid, Rs 8 for the bought call less Rs 3 received for the sold call, and is incurred if the stock ends at or below Rs 100.

  1. ARs 3
  2. BRs 5Correct
  3. CRs 8
  4. DRs 10

Explanation

Net premium paid = 8 - 3 = Rs 5. The maximum loss occurs when the stock is at or below 100 and both calls expire worthless, so the loss equals this net debit of 5. Rs 8 ignores the premium received, and Rs 10 is the spread width, which is not the loss.

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