Question

Which of the following will create a bear spread?

Buy a put with a strike price of X = 45 and sell a put with a strike price of X = 50

Buy a call with a strike price of X = 45 and sell a call with a strike price of X =50

Buy a call with a strike price of X = 50 and sell a call with a strike price of X = 45

Buy a call with a strike price of X = 50 and buy a put with a strike price of X =55

Answer 1

A bear spread is an option strategy used when the investor expects a mild decline in the price of the underlying asset. There are 2 types of Bear Spread :

1) Bear call spread : A bear call spread is a type of options strategy used when the purchaser of the option expects a decline in the price of the underlying asset. A bear call spread is achieved by going long a call option at a higher strike price and going short a call option at a lower strike price with the same maturity.

2) Bear put spread : A bear put spread is achieved by going long a put option at a higher strike price and going short a put option at a lower strike price with the same maturity

Option C is correct.
Buy a call with a strike price of X = 50 and sell a call with a strike price of X = 45

This is an example of Bear Call spread since the investor goes long a call option at higher strike price and going short on call option at lower strike price.