Alligator Spread


DEFINITION of 'Alligator Spread'

An unprofitable spread that occurs as a result of large commissions charged on the transaction, regardless of favorable market movements. An alligator spread is usually used in the options market to describe a collection of put and call options that may not be profitable.

BREAKING DOWN 'Alligator Spread'

Pricing models and a more efficient market can help reduce the traditional spread on a security, but it is commissions that create the alligator spread, not market inefficiencies. The commissions are dependent on a transaction's brokers. Investors should check the commission schedules carefully to avoid having their profits devoured by the alligator spread.

  1. Market

    A medium allowing buyers and sellers of a specific good or service ...
  2. Commission

    A service charge assessed by a broker or investment advisor in ...
  3. Option

    A financial derivative that represents a contract sold by one ...
  4. Spread

    1. The difference between the bid and the ask price of a security ...
  5. Broker

    1. An individual or firm that charges a fee or commission for ...
  6. Crude Oil

    Crude oil is a naturally occurring, unrefined petroleum product ...
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  1. What is an alligator spread?

    An alligator spread refers to a financial position (a unique combination of put and call options) that is unprofitable because ... Read Full Answer >>
  2. How do hedge funds use equity options?

    With the growth in the size and number of hedge funds over the past decade, the interest in how these funds go about generating ... Read Full Answer >>
  3. Can mutual funds invest in options and futures?

    Mutual funds invest in not only stocks and fixed-income securities but also options and futures. There exists a separate ... Read Full Answer >>
  4. How does a forward contract differ from a call option?

    Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >>
  5. What are common delta hedging strategies?

    The term delta refers to the change in price of an underlying stock or exchange-traded fund (ETF) as compared to the corresponding ... Read Full Answer >>
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    The breakeven point for a short put is the strike price of the option minus the premium. Selling puts is a way for traders ... Read Full Answer >>

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