Difference between spreads and combinations
For the American football offensive scheme, see Spread offense. They are grouped by the relationships between the strike price and expiration dates of the options involved. Options finance Derivatives finance.
For example, a bull put spread is basically a bull spread that is also a credit spread while the iron butterfly can be broken down into a combination of a bull put spread and a bear call spread. Views Read Edit View history. If the opposite is true, then a debit is taken.
The calls and puts have the same expiration date. The three main classes of spreads are the horizontal spread, the vertical spread and the diagonal spread. For the American football offensive scheme, see Spread offense. A bear spread is a spread where favorable outcome is obtained when the price difference between spreads and combinations the underlying security goes down.
The three main classes of spreads are the horizontal spread, the vertical spread and the diagonal spread. This article needs additional citations for verification. When more options are purchased than written, it is a backspread.
The resulting portfolio is delta neutral. Difference between spreads and combinations material may be challenged and removed. A box spread consists of a bull call spread and a bear put spread. If the premiums of the options sold is higher than the premiums of the options purchased, then a net credit is received when entering the spread. Diagonal spreads are constructed using options of the same underlying security but different strike prices and expiration dates.
For example, a January box consists of:. For this reason, a box is sometimes considered a "pure interest rate play" because buying one basically constitutes lending some money to the counterparty until exercise. They are grouped by the relationships between the strike price and expiration dates of the options involved. Views Read Edit View history.
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They are called diagonal spreads because they are a combination of vertical and horizontal spreads. There are also spreads in which unequal number of options are simultaneously purchased and written. A box spread position has a constant payoff at exercise equal to the difference in strike values. This article needs additional citations for verification.