Spread strategy

Similar financial terms

Spread
A spread is either (a) the gap between bid and ask prices of a stock or other security, (b) The simultaneous purchase and sale of separate futures or options contracts for the same commodity for delivery in different months (also known as a straddle), (c) the difference between the price at which an underwriter buys an issue from a firm and the price at which the underwriter sells it to the public or (b) the price an issuer pays above a benchmark fixed-income yield to borrow money.

Spread transaction
A position in two or more options of the same type.

Spread option
AN option where the payoff depends on the difference between two market variables.

Horizontal spread
The simultaneous purchase and sale of two options that differ only in their expiration dates.

Yield spread strategies
Strategies that involve positioning a portfolio to capitalize on expected changes inyield spreads between sectors of the bond market.

Vertical spread
Simultaneous purchase and sale of two options that differ only in their exercise price.

TED spread
Difference between U.S. Treasury bill rate and eurodollar rate; used by some traders as a measure of investor/trader anxiety.

Spreadsheet
A computer program that organizes numerical data into rows and columns on a terminal screen, for calculating and making adjustments based on new data.

Spread income
Also called margin income, the difference between income and cost. For a depository institution, the difference between the assets it invests in (loans and securities) and the cost of its funds (deposits and other sources).

Relative yield spread
The ratio of the yield spread to the yield level.

Quality spread
Also called credit spread, the spread between Treasury securities and non-Treasury securities that are identical in all respects except for quality rating. For instance, the difference between yields on Treasuries and those on single A-rated industrial bonds.

Option-adjusted spread (OAS)
(a) The spread over an issuer's spot rate curve, developed as a measure of the yield spread that can be used to convert dollar differences between theoretical value and market price. (b) The cost of the implied call embedded in a MBS, defined as additional basis-yield spread. When added to the base yield spread of an MBS without an operative call produces the option-adjusted spread.

Maturity spread
The spread between any two maturity sectors of the bond market.

Bid-asked spread
The difference between the bid and asked prices.

Bull spread
A spread strategy in which an investor buys an out-of-the-money put option, financing it by selling an out-of-the money call option on the same underlying.

Calendar spread
Applies to derivative products. A strategy in which there is a simultaneous purchase and sale of options of the same class at the same strike prices, but with different expiration date.

Ted Spread
The difference between the price of the three-month U.S. Treasury bill futures contract and the price of the three-month Eurodollar time deposit futures contract with the same expiration month.

Crush Spread
In the soybean futures market, the simultaneous purchase of soybean futures and the sale of soybean meal and soybean oil futures to establish a processing margin.

Active portfolio strategy
A strategy that uses available information and forecasting techniques to seek a better performance than a portfolio that is simply diversified broadly. Related: passive portfolio strategy.

Structured portfolio strategy
A strategy in which a portfolio is designed to achieve the performance of some predetermined liabilities that must be paid out in the future.

Stock replacement strategy
A strategy for enhancing a portfolio's return, employed when the futures contract is expensive based on its theoretical price, involving a swap between the futures, treasury bills portfolio and a stock portfolio.

Randomized strategy
A strategy of introducing into the decision-making process a random element that is designed to reduce the information content of the decision-maker's observed choices.

Protective put buying strategy
A strategy that involves buying a put option on the underlying security that is held in a portfolio.

Passive portfolio strategy
A strategy that involves minimal expectational input, and instead relies on diversification to match the performance of some market index. A passive strategy assumes that the marketplace will reflect all available information in the price paid for securities, and therefore, does not attempt to find mispriced securities.

Pac-Man strategy
Takeover defense strategy in which the prospective acquiree retaliates against the acquirer's tender offer by launching its own tender offer for the other firm.

Overlay strategy
A strategy of using futures for asset allocation by pension sponsors to avoid disrupting the activities of money managers.

Ladder strategy
A bond portfolio strategy in which the portfolio is constructed to have approximately equal amounts invested in every maturity within a given range.

Exit strategy
Refers to the way in which investors and founders can "exit", i.e. leave their company, with a cash return on their investment - e.g. by going public or being acquired or being bought out by other shareholders.

Barbell strategy
A strategy in which the maturities of the securities included in the portfolio are concentrated at two extremes.

Bullet strategy
A strategy in which a portfolio is constructed so that the maturities of its securities are highly concentrated at one point on the yield curve.

Buy-and-hold strategy
A passive investment strategy with no active buying and selling of stocks from the time the portfolio is created until the end of the investment horizon.

Combination strategy
A strategy in which a put and with the same strike price and expiration are either both bought or both sold.

Covered call writing strategy
A strategy that involves writing a call option on securities that the investor owns in his or her portfolio. See covered or hedge option strategies.