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Glossary Term: BOX SPREAD

Definition(s) for BOX SPREAD:


1. ) 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 purpose of acquiring the position at a sufficiently low outlay that a favorable return is guaranteed.

2. ) A type of option arbitrage in which both a bull spread and a bear spread are established for a near-riskless position. One spread is established using put options and the other is established using calls. The spread may both be debit spreads (call bull spread vs. put bear spread) or both credit spreads ( call bear spread vs. put bull spread). Break-Even Point--the stock price (or prices) at which a particular strategy neither makes nor loses money. It generally pertains to the result at the expiration date of the options involved in the strategy. A dynamic break-even point is one that changes as time passes.

3. ) A four-sided option spread that involves a long call and a short put at one strike price as well as a short call and a long put at another strike price. Example: buying 1 XYZ May 60 call, and writing 1 XYZ May 65 call; simultaneously buying 1 XYZ May 65 put, and writing 1 May 60 put.



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