Question

A customer sells 1 ABC Nov 45 Call @ $9 and buys 1 ABC Nov 60 Call @ $1. Later, the positions were closed - the ABC Nov 45 call was closed aaC Nov 60 Call was closed at $2. The customer has a:________

Answer 1

The opening position is:

Buy 1 ABC Nov 45 Call @ $9

Sell 1 ABC Nov 60 Call @ $1

= $8 Debit

The closing position is:

Sell 1 ABC Nov 45 Call @ $5

Buy 1 ABC Nov 60 Call @ $2

= $3 Credit

The net loss of $500 is due to the fact that the payouts are that between 8 and 3. Note that debit spread is competitive even if the allocation of premiums decreases.