Business Glossary

option strategy that involves purchasing an option at one strike price while simultaneously selling another option of the same class at the next higher or lower strike price. Both options have the same expiration date. For example, a vertical spread is created by buying an XYZ May 30 call and selling an XYZ May 40 call. The investor who buys a vertical spread hopes to profit as the difference between the option premium on the two option positions widens or narrows. Also called a price spread .