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.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

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.
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.
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Switching to Direct Debit spreads costs, keeps budgets simple and saves time."