Answer-first summary for fast verification
Answer: Short call with a $2.65 premium and strike of $43.00; i.e., $p = 2.65$, $K=43.00$
The answer is **B**. A bull call spread is constructed by buying a call at the lower strike and selling a call at the higher strike. Since the displayed position is a **long call with strike 40**, the missing leg must be a **short call with a higher strike**. Among the choices, only **B** matches this structure with a strike of **43**. This is also consistent with the provided answer key: the bull spread profit combines the long call at **K = 40** with the short call at **K = 43**.
Author: Manit Arora
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Question 606.1
Illustrated below is the profit (not payoff) diagram for a bull spread EXCEPT one of the two option positions is missing:
The long call, which is plotted with a dashed blue line, has a premium of $4.00 and a strike price of $40.00; i.e., c = \`4.00$ and $K = \. The bull spread profit is simply a plot of the combination of the displayed long call and the un-displayed option. Which option is not plotted; i.e., which option must contribute to the bull spread profit yet is NOT displayed in the graph?
A
Long call with a $1.25 premium and strike of $39.00; i.e., ,
B
Short call with a $2.65 premium and strike of $43.00; i.e., ,
C
Short call with a $3.30 premium and strike of $37.50; i.e., ,
D
Short call with a $4.00 premium and strike of $46.00; i.e., ,
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