Box Spread

Categories: Derivatives, Trading

A Box Spread is also known as a Long Box. It's a strategy of buying shares in pairs of bull call spreads and bear put spreads.

A spread (not the kind you use to flavor your slice of sourdough) is the difference between the bid and the asking price. The bull call strategy is used when a moderate rise in assets is expected. To do this, the investor buys stocks at a specific price and writes calls on the same assets at a higher price (basically buying the share and preparing to sell directly afterward for a profit).

The bear put strategy is the opposite: the investor buys expecting a loss.

These purchases will have the same strike price and the same expiration date. By pairing the shares up this way, the payoff will be the difference between the two strike prices. This is done when the investor believes the shares are underpriced. The opposite pairs would use the short box strategy.

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