Atlantic Spread

DEFINITION of 'Atlantic Spread'

An options trading strategy that involves purchasing both an American option and a European option, in order to take both sides of a position. Each option is referred to as a "leg" of the spread; the Greeks Delta, Vega and Theta can be used to evaluate the spread's risk.

BREAKING DOWN 'Atlantic Spread'

The Atlantic spread's name comes from the body of water that separates the United States and Europe. However, the terms "American option" and "European option" don't really have anything to do with the countries they are named after. An American option is simply one that can be exercised at any time, while a European option is one that can only be exercised at maturity. The latter is usually considered less valuable, since it is less flexible. An option could be more valuable if exercised early, depending on what happens in the market, and American options provide for that possibility.

RELATED TERMS
  1. Short Leg

    Any contract in an option spread in which an individual holds ...
  2. American Option

    An option that can be exercised anytime during its life. American ...
  3. Long Leg

    The part of an option spread strategy that involves buying an ...
  4. European Option

    An option that can only be exercised at the end of its life, ...
  5. Mid-Atlantic Option

    An option that can be exercised at different times during the ...
  6. Theta

    A measure of the rate of decline in the value of an option due ...
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