Buzzword of the Week: Alligator Spread

Beware the excessive commission. According to Investopedia, an alligator spread is “an unprofitable spread that occurs as a result of large commissions charged on the transaction, regardless of favorable market movements. An alligator spread is usually used in the options market to describe a collection of put and call options that may not be profitable.

“Pricing models and a more efficient market can help reduce the traditional spread on a security, but it is commissions that create the alligator spread, not market inefficiencies. The commissions are dependent on a transaction’s brokers. Investors should check the commission schedules carefully to avoid having their profits devoured by the alligator spread.”

I hope that you’ll be a wise investory and keep your money away from those Jaws of Death…

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