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| Alligator Spread |
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An unprofitable spread regardless of favorable market movements and due to large commissions charged upon the transactions. An alligator spread is usually used in the options market to describe a collection of put and call options that may not be profitable.
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Pricing models and a more efficient market can help reduce the traditional spread on a security, but commissions create the alligator spread rather than market inefficiencies. The commissions are dependent on the brokers of a transaction, investors need to check the commission schedules carefully if they don’t want to see their profits eaten by the alligator spread.
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