Question of the Week

Which of the following is a horizontal spread?

a) Buy 1 FBN Aug 50 Call; Long 1 XYZ Aug 50 Put
b) Write 1 PDQ Feb 35 Call; Buy 1 PDQ Apr 45 Call
c) Short 1 XYZ Mar 30 Put; long 1 XYZ Nov 30 Put
d) Long 1 ABC Jan 50 Call; short 1 ABC Jan 60 Call

Answer:

The correct answer is c.

A horizontal spread is also called a time spread or a calendar spread. The terms of the two contracts are identical except for the expiration date. This strategy is called horizontal because the expiration dates are arrayed horizontally in newspaper quotes. Therefore, the correct answer is c: "Short 1 XYZ Mar 30 Put; long 1 XYZ Nov 30 Put".

The remaining options are incorrect because:
1) "Long 1 ABC Jan 50 Call; short 1 ABC Jan 60 Call" is a vertical or price spread
2) "Buy 1 FBN Aug 50 Call; Long 1 XYZ Aug 50 Put" is a long straddle.
3) "Write 1 PDQ Feb 35 Call; Buy 1 PDQ Apr 45 Call" is a diagonal spread.


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