DEFINITION of 'Frontspread'

A type of options spread in which a trader holds more short positions than long positions. This type of spread has unlimited risk of loss while also limiting profit potential. This type of trade is often implemented by professional traders who believe that the price of an underlying asset will make a calculated move higher or that volatility will decrease.

Also known as a "ratio vertical spread".

BREAKING DOWN 'Frontspread'

An example of a frontspread is known as a "Christmas tree", which is achieved by purchasing one call option and selling two other call options at two higher strike prices. These types of trades have unlimited downside risk due to the extra short call option and should only be attempted by professional traders.

RELATED TERMS
  1. Spread Option

    A type of option that derives its value from the difference between ...
  2. Long Leg

    The part of an option spread strategy that involves buying an ...
  3. Buy A Spread

    Option strategy that will be profitable if the underlying security ...
  4. Diagonal Spread

    An options strategy established by simultaneously entering into ...
  5. Christmas Tree

    An options trading strategy that is generally achieved by purchasing ...
  6. Horizontal Spread

    An options strategy involving the simultaneous purchase and sale ...
Related Articles
  1. Trading

    Pencil In Profits In Any Market With A Calendar Spread

    This options spread strategy provides many advantages over plain old puts and calls.
  2. Trading

    Option Spread Strategies

    Learn why option spreads offer trading opportunities with limited risk and greater versatility.
  3. Trading

    Which Vertical Option Spread Should You Use?

    Knowing which option spread strategy to use in different market conditions can significantly improve your odds of success in options trading.
  4. Trading

    Bear Put Spreads: A Roaring Alternative To Short Selling

    This strategy allows you to stop chasing losses when you're feeling bearish.
  5. Trading

    How To Manage A Bull Call Spread

    A bull call spread, also called a vertical spread, involves buying a call option at a specific strike price and simultaneously selling another call option at a higher strike price.
  6. Trading

    Options Trading: How Implied Volatility Affects Calendar Spread

    Even if the risk curves for a calendar spread look enticing, a trader needs to assess implied volatility for the options on the underlying security.
  7. Trading

    An Option Strategy for Trading Market Bottoms

    The reverse calendar spreads offers a low-risk trading setup that has profit potential in both directions.
  8. Trading

    S&P 500 Options On Futures: Profiting From Time-Value Decay

    Writing bull put credit spreads are not only limited in risk, but can profit from a wider range of market directions.
RELATED FAQS
  1. How do I set a strike price in an options spread?

    Find out more about option spread strategies, and how to set the strike prices for bull call spreads and bull put spreads ... Read Answer >>
  2. What is spread hedging?

    Learn about one of the most common risk-management strategies options traders use, called spread hedging, to limit exposure ... Read Answer >>
  3. What's the difference between a credit spread and a debt spread?

    Learn about debit and credit option spread strategies, how these strategies are used, and the differences between debit spreads ... Read Answer >>
  4. How do traders use debit spreads to protect against loss?

    Review an example of how a trader might use a debit spread to limit the maximum loss on an options transaction, limiting ... Read Answer >>
  5. What types of options positions create unlimited liability?

    Understand that naked selling of call options can create unlimited amounts of liability and potentially lead to devastating ... Read Answer >>
  6. Do options make more sense during bull or bear markets?

    Understand how options may be used in both bullish and bearish markets, and learn the basics of options pricing and certain ... Read Answer >>
Hot Definitions
  1. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  2. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  3. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
  4. Job Market

    A market in which employers search for employees and employees search for jobs. The job market is not a physical place as ...
  5. Yuppie

    Yuppie is a slang term denoting the market segment of young urban professionals. A yuppie is often characterized by youth, ...
  6. SEC Form 13F

    A filing with the Securities and Exchange Commission (SEC), also known as the Information Required of Institutional Investment ...
Trading Center