Bull Call Debit Spread: Breakeven, Maximum Gain, and Maximum Loss
An investor bullish on Omega Semiconductor executes a vertical spread by purchasing 1 Omega Nov 70 Call at a premium of $6.00 and selling 1 Omega Nov 80 Call at a premium of $1.50 when the stock trades at $71. What is the investor's maximum gain, maximum loss, and breakeven price per share?
In a bull call debit spread: Net Debit = $6 - $1.50 = $4.50 (Max Loss). Difference in strikes = $80 - $70 = $10. Max Gain = $10 - $4.50 = $5.50 ($550). Breakeven = Lower Strike + Net Debit = $70 + $4.50 = $74.50.
Complete Analysis & Legal Rationale
Net debit paid = $6.00 paid - $1.50 collected = $4.50 per share ($450 total), which represents the maximum potential loss. The maximum profit occurs if the stock rises to $80 or above: Strike difference ($80 - $70 = $10.00) minus Net Debit ($4.50) = $5.50 per share ($550 total). The breakeven point is Lower Strike ($70) + Net Debit ($4.50) = $74.50.
Distractor Autopsy (Why Other Options Are Traps)
FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:
Accurately calculates Net Debit ($4.50), Max Gain ($5.50), and Breakeven ($70 + $4.50 = $74.50).
Inverts max gain and max loss, applying credit spread mechanics to a debit spread.
Fails to subtract the net debit from the strike differential when computing max gain.
Uses gross long premium rather than net debit to evaluate maximum loss and breakeven.
Official Standard: Establishes definitions and margin standards for debit call spreads.