Hello, I think this answer is incorrect. The question reads Long 120 Jan and short 120 Dec call. Answer choice is saying long Jan spread is dominant but I believe it should be short Dec call because of the expiration.
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Hi @Annual_maroon_bandic - thanks for using our forum.
The January option will be the dominant leg because it lasts longer than the December leg. The answer is correct, but let me know if you have additional questions.
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We get this question a lot! To add a little more context:
For the options questions, we leave it intentionally vague at times, and FINRA will do the same.
For instance, consider this spread: Investor goes Long 1 AXP Jan $85 call and Short 1 AXP Dec $85 call
Although it doesn’t say anything about when this was purchased, we can infer that the longer expiration is in January. This is because options (with the exception of LEAPS) have a max 9-month expiration. It would not be possible to do a spread with e.g. Jan 2022 and Dec 2022 (since that would mean it is currently Q4 2021 or earlier, and the Dec 2022 options would have an impossible 12+ mo expiration). So the expirations must be Jan 2022 and Dec 2021, and we’re probably in Q3 or Q4 2021.
It can seem kinda silly but just sketching out a timeline with calendar months and the expirations can help a lot.
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Thank you, this explanation helps a lot.
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