Criteria for Identifying Appropriate Option Strategies

CFA Level III Derivatives
#1

Hi to everybody,

I really don’t understand this sentence which comes from the curriculum: « This is because in the put bear spread, the lower exercise price, more OTM (but relatively more expensive) put is sold and the higher exercise price, nearer-to-the-money (but relatively less expensive) put is purchased. »

How can an OTM put be more expensive and an ATM put be less expensive?

Thank you.

#2

Sounds wrong to me.

Did you check the errata?

#3

Hi,

Thank you for your answer. No I did not. Maybe because we are selling the option OTM this could be more expensive, because we sold it at a lower price (then more expensive). I am going to check. Still 4 day till the exam. Thanks again.