Box Spreads

A box spread is an option strategy that is created by combining the components of the bull spread and the bear spread. By creating a box spread, you are creating a neutral riskless position that generates a return like a bond. A box spread can be used to borrow or lend funds.

What are its components?

A box spread has four components:

  • Long call at strike price 1
  • Short call at strike price 2
  • Short put at strike price 1
  • Long put at strike price 2

When and why should I have a bear spread?

You should have a box spread if you have a neutral view on the stock’s performance. The box spread will give the trader the ability to lend or borrow cash using a box spread.

What is the payoff and profit graph?

What is the break-even point?

Since the box spread has a payoff and profit structure like a bond, it does not have a break-even point.

About Kevin Smith

Kevin is the content manager for Personal Finance Lab and is from Chicago, Illinois. He has a Master's Degree in Economics from Concordia University in Montreal, Canada. In addition to an economics background, he has also built training manuals to prepare finance companies for licensing requirements in mortgage loan origination and insurance sales.