Think of those old monster movies, where the mad scientist is bringing the dead guy to life, or perfecting his invisibility potion, or whatever. The set design invariably includes a machine that has electricity arcing between two giant metal balls. One kind of spark spread.
The other involves the electricity generation business (which might involve a machine where electricity arcs between two metal balls...it probably depends on state regulations).
The term "spark spread" refers to the difference between the wholesale price of electricity and the cost of producing that electricity. The "spread" in question equates to the gross margin for a unit of electricity. After all, providing electricity doesn't involve catching lightning with a giant apparatus (despite what monster movies say). It usually involves buying some kind of fuel (coal, natural gas, etc.) and then using that fuel to run big machines that generate electricity.
The cost of production (including the fuel) provides one side of the spark spread. The other component involves the market price for the electricity. That figure represents the amount the electricity-generating firm can get for the product. Comparing those figures provides the spark spread.
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Finance: What is Spread?48 Views
finance a la shmoop. what is spread? before we start just no. get your mind
out of the gutter. spread refers to the money value between [100 dollar bill]
a bid and ask price under a market maker structure of trading securities. no more
wire hangers, a plastic hanger company is publicly traded on an exchange like
Nasdaq where buyers bid for a price to purchase and sellers ask for a price to [Nasdaq wall shown]
trade. no more wire hangers is bid this moment at 37:23 a share by buyers
willing to buy right now at that price and is being asked at this moment at a
price of 37.31. note the eight cents a shared difference in the share prices.
that dif is the spread between the two prices, and it's worth noting that in [bread is buttered]
extremely volatile stocks, the spread widens. and in boring highly liquid
stocks which don't move much, the spread tightens or is narrower. that is on a
volatile equivalent of no more wire hangers the spread might grow to 20 or
30 cents a share whereas a boring name that pays a big dividend and the stock
never moves much we're thinking AT&T here, [man snores at a desk]
well that spread might be just three or four cents. so why grow? well because a
market maker in a volatile stock doesn't want to be caught losing money on her
inventory. if no more wire hangers suddenly gapped down to 37.10 a share [equation shown]
well it would be likely less than the average of what the market maker paid
for her quote "inventory" unquote in that stock from which he was making a market
in it. each time the shares trade the market makers dip into that spread to [woman dips cracker in butter]
pay their bills and allow them to keep doing business. so that's spread. and it's
not the type that Prince used to sing about. [man on stage]
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Spread to treasuries is an indication of risk associated with a given debt or bond offering.