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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.
Investopedia Says

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 Definitions

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    Broker

    1. An individual or firm that charges a fee or commission for executing buy and sell orders submitted by an investor. 2. The role of a firm when it acts as an agent for a customer and ...
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  • Commission

    A service charge assessed by a broker or investment advisor in return for providing investment advice and/or handling the purchase or sale of a security. Most major, full-service ...
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  • Market

    1. A medium that allows buyers and sellers of a specific good or service to interact in order to facilitate an exchange. The price that individuals pay during the transaction may be ...
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      A financial derivative that represents a contract sold by one party (option writer) to another party (option holder). The contract offers the buyer the right, but not the obligation, to ...
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      1. The difference between the bid and the ask price of a security or asset. 2. An options position established by purchasing one option and selling another option of the same class but ...
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