An
options position in which an
investor buys an option at a given
premium and
writes another option with a lower premium and a different
strike price. It is important to note that both options
expire on the same day. An investor buys a spread to create a position in which he/she will make a
profit whether or not the options are
exercised. If the investor exercises the option he/she bought, it is because he/she expects to profit on the resale of the
underlying asset. If the option with the lower premium is exercised, the investor profits on the sale of the underlying. See also:
Exotic option,
Spread.