Answer-first summary for fast verification
Answer: 281%
A bull call spread is constructed by **buying the lower-strike call** and **selling the higher-strike call**. - Long $22 call: cost = $2.00 - Short $26 call: premium received = $0.95 - **Net initial cost** = $2.00 - $0.95 = **$1.05** Maximum payoff occurs when the stock price is at or above the higher strike: - Spread width = $26 - $22 = **$4.00** So, maximum profit = maximum payoff - initial cost: - $4.00 - $1.05 = **$2.95** ROI = maximum profit / initial cost: - $2.95 / $1.05 = 2.8095 ≈ **281%** Therefore, the correct answer is **C**.
Author: Manit Arora
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Q-184.1. The price of a stock is currently $20.00. An OTM call option on the stock has a strike at $22.00 and costs $2.00. An OTM call option with a strike of $26.00 costs $0.95. If an investor uses both of these options to enter a BULL SPREAD trade, what is the trade’s maximum return on investment (ROI) where ROI = maximum profit / initial cost, without regard to time value of money?
A
85%
B
187%
C
281%
D
364%
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