Alligator Spread

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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.

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RELATED FAQS
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    An alligator spread refers to a financial position (a unique combination of put and call options) that is unprofitable because ... Read Full Answer >>
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    A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset, ... Read Full Answer >>
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