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(1) The difference between the bid and the asked price in any market. (2) The difference between the yields or prices of two financial instruments. (3) The price or rate difference between two delivery months in a futures market. (4) A transaction designed to profit from a narrowing or widening of a price or yield spread. Also called Spread Position, Spread Warrant. (5) For listed options: The purchase of one option and the sale of another option of the same type on the same security or index. The investor setting up the spread hopes to profit from a favorable change in the difference between the prices of the two options. If the number of options purchased is not equal to the number sold, the position may be called a ratio spread or a variable spread. Also called Spread Position, Option Spread. See Hedge. (6) The difference between the price investors pay an underwriter for a new securities offering and the proceeds of the financing paid to the issuer. (7) In the old conventional stock option market (largely pre- 1973): A straddle-like position in which the put side and the call side were struck at different prices. Typically, the put strike was below and the call strike was above the market price of the stock at the time the spread was established. In the listed-option market, this position is called a Spraddle or a Strangle. See Combination Option.
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