Answer: Bear spread, with maximum profit of USD 8, and maximum loss of USD 2

## Explanation This strategy is a **bear spread** using call options. Here's the detailed breakdown: ### Strategy Components: - **Sell**: January 2023 call option with strike price USD 50 for USD 10 - **Buy**: January 2023 call option with strike price USD 60 for USD 2 ### Net Premium Received: USD 10 (from selling) - USD 2 (from buying) = **USD 8** (inflow) ### Maximum Profit: - **USD 8** - This occurs when the stock price is **≤ USD 50** at expiration - Neither option is exercised, so the investor keeps the entire premium received ### Maximum Loss: - **USD 2** - This occurs when the stock price is **≥ USD 60** at expiration - Both options are exercised: - Investor must sell shares at USD 50 (obligation from sold call) - Investor buys shares at USD 60 (exercising purchased call) - Loss of USD 10 on the spread - Net profit = USD 8 (premium) - USD 10 (spread loss) = USD -2 ### Why it's a Bear Spread: - A bear spread profits when the underlying asset price decreases - By selling a lower strike call and buying a higher strike call, the investor benefits from price declines - The strategy has limited profit potential and limited loss potential ### Key Points: - **Not a bull spread** (which would involve buying lower strike and selling higher strike) - **Not unlimited profit** (maximum is capped at the premium received) - **Not unlimited loss** (maximum loss is limited to the difference between strike prices minus premium received)

Author: LeetQuiz .