debit spread(redirected from Debit spreads)
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.
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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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
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.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.