sell a spread

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Sell a Spread

In options, to write a contract for a higher premium than a contract with the same underlying asset that one buys. For example, one my write a put option with a certain underlying after buying a similar put option with the same underlying, though often with a shorter expiration date. One sells a spread to hedge investments: in this case, if either option is exercised, the investor has still made a profit by selling the contract at a higher premium that the one he/she paid for buying the other contract.

sell a spread

In options trading, to establish a spread position in which the premium on the option sold exceeds the premium on the option purchased. The spread may be on the basis of a difference in expiration or a difference in strike price. An example of selling a spread would be to sell an August call ($20 strike) on Goodyear for a premium of $137 and to buy a February call ($20 strike) for $25.