Alligator Spread

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Commission

    A service charge assessed by a broker or investment advisor in ...
  2. Market

    1. A medium that allows buyers and sellers of a specific good ...
  3. Option

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

    1. An individual or firm that charges a fee or commission for ...
  5. Spread

    1. The difference between the bid and the ask price of a security ...
  6. Multibank Holding Company

    A company that owns or controls two or more banks. Mutlibank ...
Related Articles
  1. The Basics Of The Bid-Ask Spread
    Investing Basics

    The Basics Of The Bid-Ask Spread

  2. Options Basics Tutorial
    Options & Futures

    Options Basics Tutorial

  3. Vertical Bull and Bear Credit Spreads
    Options & Futures

    Vertical Bull and Bear Credit Spreads

  4. Trading The QQQQ With In-The-Money Put ...
    Options & Futures

    Trading The QQQQ With In-The-Money Put ...

Hot Definitions
  1. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  2. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
  3. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
  4. Parity Price

    When the price of an asset is directly linked to another price. Examples of parity price are: 1. Convertibles - the price ...
  5. Earnings Multiplier

    An adjustment made to a company's P/E ratio that takes into account current interest rates. The earnings multiplier is used ...
  6. Macroeconomics

    The field of economics that studies the behavior of the aggregate economy. Macroeconomics examines economy-wide phenomena ...
Trading Center