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. Spread

    1. The difference between the bid and the ask price of a security ...
  3. Commission

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

    A financial derivative that represents a contract sold by one ...
  5. Broker

    1. An individual or firm that charges a fee or commission for ...
  6. Put-Call Parity

    A principle that defines the relationship between the price of ...
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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 >>
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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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