Glossary
Box Spread
A box spread is an advanced options trading strategy that combines a bull call spread and a bear put spread with the same strike prices and expiration date. It’s used to lock in a risk-free profit (in theory) or simulate a synthetic loan, often by professional or institutional traders.
How does a box spread work?
It involves buying a call and selling a call at different strike prices (bull call spread), and simultaneously buying a put and selling a put at the same strike prices (bear put spread), all with the same expiration date.
What is the purpose of a box spread?
Box spreads are often used to exploit mispriced options or simulate borrowing/lending using options when interest rate differences allow.
Is a box spread really risk-free?
In theory, yes—if executed perfectly and priced correctly. In practice, transaction costs, margin requirements, and execution risk can eliminate or reverse profits.
Who uses box spreads?
Primarily institutional traders and market makers who can efficiently manage large trades with low transaction costs and deep understanding of options pricing.
Can retail investors use box spreads?
While possible, they are complex and rarely beneficial for individual investors due to fees, margin requirements, and minimal return opportunities.
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