I encountered this spoiler question in my Series 7 options studies:
Let’s take a look at an example:
An investor goes short 1 TM Sep 55 call and long 1 TM Oct 55 call. What are the three names associated with this call spread?
The spoiler gives the following:
Long call spread
It’s a long call spread because the long call is the dominant option.
Bull call spread
It’s a bull call spread because the dominant long call is bullish.
Debit call spread
It’s a debit call spread because the long call is more expensive, creating a net debit (net purchase).
This is commonly called a “Calendar Spread” among options traders.
Is this something quirky with the Series 7 exam?
When I hear “Bull Call Spread” or “Call debit spread” my mind goes immediately to verticals. Also, calling a calendar spread a bull call spread is kind of tricky because it is normally a neutral trading strategy, neither bullish nor bearish.
Is this a typo, or will all calendars be called as such on the exam?
Here’s that spread visualized on ToS
I love that you’re looking at this from such a thoughtful point of view, but for the sake of the exam, you can simplify your reasoning quite a bit. For these questions, you don’t need to think about trading the strategy - you’re just naming it based on the legs.
Thanks for your reply. I think the main thing that is hanging me up is attaching the bear/bull name to this spread. It is a call spread… and you can either put it on for a debit or credit…I got that. But it’s not a “bull” call spread in the traditional sense of bullish debit spreads which are directional.
I like that you are providing another lens through which I can view options!
Hi @Gray - great points. You should think of the test material in two buckets - “test world” and “real world.” Like @Justin said, questions like this are focusing specifically on identifying the dominant leg of the spread. In my experience, professional option traders rarely use this language. However, we do cover vertical/price vs. horizontal/time/calendar spreads in another section.
Bottom line - in FINRA’s test world, they want us to be able to identify spreads by multiple names. According to the test writers, the spread you quoted above would be a horizontal/calendar/long/bull/debit call spread
Thanks for responding guys! I’m enjoying my studies on Achievable, and glad I found your program.