- Debit Spread
- 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.
For example, assume that there is a investor holding a call option who sells it for $2.50. Immediately following this sale, the investor buys another call option on the same underlying security for $2.65. The debit spread is $0.15, which results in a loss of $15 ($0.15 * 100).
Although there is an initial loss on the transaction, the investor is betting that there will be a significant change in the price of the underlying security, making the purchased option more valuable in the future.
Investment dictionary. Academic. 2012.
Look at other dictionaries:
Debit spread — In finance, a debit spread, AKA net debit spread, results when an investor simultaneously buys an option with a higher premium and sells an option with a lower premium. The investor is said to be a net buyer and expects the premiums of the two… … Wikipedia
debit spread — Applies to derivative products. Difference in the value of two options, when the value of the option bought exceeds the value of the one sold. One buys a debit spread. Antithesis of a credit spread. Bloomberg Financial Dictionary An option spread … Financial and business terms
Options spread — Spread option redirects here. For the American football offensive scheme, see Spread offense. Options spreads are the basic building blocks of many options trading strategies. A spread position is entered by buying and selling equal number of… … Wikipedia
Credit spread (options) — Finance Financial markets Bond market … Wikipedia
Diagonal spread — In Finance, A diagonal spread is established by simultaneously entering into a long and short position in two options of the same type (two call options or two put options)[jargon] but with different strike prices and expiration dates.[jargon]… … Wikipedia
credit spread — Applies to derivative products. Difference in the value of two options, when the value of the one sold exceeds the value of the one bought. One sells a credit spread. Antithesis of a debit spread Related: quality spread. Bloomberg Financial… … Financial and business terms
Bull spread — In options trading, a bull spread is a bullish, vertical spread options strategy that is designed to profit from a moderate rise in the price of the underlying security.Because of put call parity, a bull spread can be constructed using either put … Wikipedia
box spread — This strategy refers to a type of option arbitrage in which both a bull spread and a bear spread are implemented for an almost riskless position. One spread is implemented using put options and the other is implemented with calls. The spreads may … Financial and business terms
Butterfly (options) — In options trading, a long butterfly (sometimes simply butterfly) is a combination trade resulting in the following net position: * Long 1 call at (X − a) strike * Short 2 calls at X strike * Long 1 call at (X + a) strikeall with the same… … Wikipedia
Option (finance) — Stock option redirects here. For the employee incentive, see Employee stock option. Financial markets Public market Exchange Securities Bond market Fixed income … Wikipedia