debit spread

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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.

Debit Spread

An option strategy in which one buys an option for a higher premium and sells another option on the same underlying asset at a lower premium. One profits from a debit spread when there is a large change in the price of the underlying asset that will increase the value of the option with the higher premium; the option with the lower premium hedges the investor's risk.

debit spread

The simultaneous sale of one option and purchase of another option that results in a debit to the investor's account. Thus, more funds are required for the purchase than are received from the sale. An example is the purchase of a 6-month call at a price of $500 and the simultaneous sale of a 3-month call at the same strike price for $300. This trade results in a debit of $200 plus commissions to the investor's account. Compare credit spread.
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The total outlay for this debit spread was $48,691, with the trader realizing a maximum profit of $4.
Simply put, a long butterfly spread is the combination of a credit spread and a debit spread surrounding a single strike in the middle.
Debit Spread to Buy -- Buy Rambus (Nasdaq:RMBS) Jan 2008 5 Call and sell RMBS Jan 2008 12.
Debit Spread to Buy -- Buy Fording (NYSE:FDG) Jan 2008 40 Call and sell FDG Jan 2008 45 Call.
Debit Spread to Buy -- Buy XM Satellite Radio (Nasdaq:XMSR) Jan 2008 25 Call and sell XMSR Jan 2008 30 Call.
Diamond Offshore Drilling (NYSE:DO) has seen some rather interesting option activity today, as it seems that someone initiated a debit spread at the March 70 (DO ON) and 75 (DO OO) puts shortly after 11 a.