Box Spread
Updated on March 9, 2023
Box spread is a strategy used by traders while dealing in options. It is achieved by combining bull call spread with similar bear put spread. The difference between the two will be the difference between their strike prices. The trader in this case purchases a bull call spread and a bear put spread. The strike price as well as the expiry dates of these vertical spreads are the same.
Features of Box Spread
Some features of Box Spread are
a. It is used in case of under-priced spreads
b. Strike price selection is important
c. Gains can be limited as compared with the brokerage and premium charges
d. Box Spread is used by experienced traders and is a sophisticated technique
Benefits of Box Spread
Some benefits of Box Spread are : a) Box Spread is inherently a risk free strategy
b) It is unaffected by price fluctuations
Disadvantages of Box Spread
Box Spread has some disadvantages, like :
a) Profits may be miniscule
b) Margin levels to be maintained are high
c) Positions are to be held till the end
