Series 7 Exam Question 366: Answer and Explanation

Question: 366

What is the maximum loss on a debit spread?

• A. The difference between the premium paid and the premium received
• B. The difference between the two strike prices multiplied by 100, less the premium paid, plus the premium received
• C. The difference between the two strike prices multiplied by 100, less the premium paid
• D. The difference between the two strike prices multiplied by 100

Correct Answer: A

Explanation:

A. You'll find that this question is actually much easier than you may have originally thought. To get the maximum loss on a debit (long) spread, all you have to do is put the premiums in the option chart to see that you have more money out than in. The difference between those two numbers is the maximum loss.