Box Spread - Definition
The Box Spread is a complex 4 legged options trading strategy designed to take advantage of discrepanies in options prices for a risk-free arbitrage.


Box Spread - Introduction
A Box Spread, or sometimes called an Alligator Spread due to the way the commissions eat up any possible profits, is an options trading strategy used to exploit price discrepancies in order to reap a risk-free arbitrage. Such situations occur when the principle of Put Call Parity is violated by strong, short term demand shifts in the options market. When such a situation occurs, a Box spread can be used to "box in" the profit created by the imbalance. However, such discrepancies are so short-lived and marginal that it is hard to put on a Box Spread fast enough to take advantage of it and that whatever profits there may be is so small that most of the time, it does not justify the commissions paid. That being said, the Box Spread remains one of the few true blue options arbitrage strategies to ever exist and still used amongst highly sophisticated Market Makers who can trade without the punitive commissions paid by retail investors.