box spread

Box Spread

A dual option position involving a bull and bear spread with identical expiry dates. This investment strategy provides for minimal risk. Additionally, it can lead to an arbitrage position as an investor attempts to lock in a small return at expiry.

Notes:

A box spread is a complicated strategy for the more advanced options trader. The purpose of this investment is to locate and exploit the discrepancies within the market prices of option contracts.

See also: Arbitrage, Bear Spread, Bull Spread

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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 both be debit spreads (call bull spread vs. put bear spread) or both credit spreads (call bear spread vs. put bull spread).

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box spread

A combination of four options consisting of one money spread on calls (one long, one short, same expiration, different strike price) and one money spread on puts (one long, one short, same expiration, different strike price). A box spread locks in a specific dollar return at expiration (all four options have the same expiration), with the goal being to acquire the position at a sufficiently low outlay that a favorable return is guaranteed.