Call Spread Potential
Quantitative Finance
Level
1
True or False
If you own a (1 by 1) call spread on a stock, your potential profit is unlimited.
Note: Compare with Calls .
True
False
It depends
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1 solution
The above is the payoff diagram of the call spread. If you bought a call at strike X 1 and sold the call at strike X 2 , then the maximum that it can be worth is X 1 − X 2 . Hence, your potential profile is limited, so the answer is False.