Two options with different market prices that an investor trades on the same underlying security. The higher priced option is purchased and the lower premium option is sold - both at the same time. The higher the debit spread, the greater the initial cash outflow the investor will incur on the transaction. For example, assume that there is a investor holding a call option who sells it for $2.50. Immediately following this sale, the investor buys another call option on the same underlying security for $2.65. The debit spread is $0.15, which results in a loss of $15 ($0.15 * 100).
Although there is an initial loss on the transaction, the investor is betting that there will be a significant change in the price of the underlying security, making the purchased option more valuable in the future.
Applicable Federal Rate
Introducing, the Key Players in Forex
What Makes an Elite Trader Stand Out?
Revisiting the Top Financial Advisor Credentials
Economic Reports: The Market Movers
Stock Options: Reporting and Taxation
SEE FOREX TUTORIAL
Ethical Investing: Knowing Human Rights and Workers` Rights
Buying a Home: Closing the Deal
An Introduction to Forex
Student Loans: Loan Repayment
Retirement Planning: Allocating Money for Retirement
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