A Box Spread is a dual option position involving a bull and bear spread with identical expiry dates. This investment strategy provides for minimal risk. Additionally, it can lead to an arbitrage position as an investor attempts to lock in a small return at expiry. A box spread is a complicated strategy for the more advanced options trader. The purpose of this investment is to … [Read more...]
Ratio Spread
A Ratio Spread is an options strategy in which an investor simultaneously holds an unequal number of long and short positions. A commonly used ratio is two short options for every option purchased. A ratio spread would be achieved by purchasing one call option with a strike price of $45 and writing two call options with a strike price of $50. This would allow the investor to … [Read more...]
Ratio Backspreads
Ratio Backspreads is a Credit volatile options trading strategy that opens up one leg for unlimited profit through selling a smaller amount of in the money options against the purchase of at the money or out of the money options of the same type. As the same suggests, Ratio Backspreads are backspreads, which means that they are options trading strategies designed to profit … [Read more...]
Debit Spreads [Explained]
A Debit Spread means two options with different market prices that an investor trades on the same underlying security. The higher priced option is purchased and the lower premium option is sold - both at the same time. The higher the debit spread, the greater the initial cash outflow the investor will incur on the transaction. Although there is an initial loss on the … [Read more...]
Credit Spreads
There are two simple ways to define Credit Spreads. These are as follows : The spread between Treasury securities and non-Treasury securities that are identical in all respects except for quality rating. An options strategy where a high premium option is sold and a low premium option is bought on the same underlying security. For instance, the difference between … [Read more...]