Spread Option

DEFINITION of 'Spread Option'

A type of option that derives its value from the difference between the prices of two or more assets. Spread options can be written on all types of financial products including equities, bonds and currencies. This type of position can be purchased on large exchanges, but is primarily traded in the over-the-counter market.

BREAKING DOWN 'Spread Option'

Some types of commodity spreads enable the trader to gain exposure to the commodity's production process. This is created by purchasing a spread option based on the difference between the inputs and outputs of the process. Common examples of this type of spread are the crack, crush and spark spreads.

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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'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 >>
  3. 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 >>
  4. What are some examples of financial spread betting?

    Learn how financial spread betting is done, and see examples of some of the ways that investors can use spread betting as ... Read Answer >>
  5. What types of stocks have a large difference between bid and ask prices?

    Find out which factors influence bid-ask spread width. Learn why some stocks have large spreads between bid and ask prices, ... Read Answer >>
  6. How can I use an out-of-the-money put time spread for downside risk?

    Learn how using an out-of-the-money time put spread can be used to hedge downside risk by reducing the amount of premium ... Read Answer >>
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