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Definition of Price Spread

Price Spread is a term used to describe an option spread where the long and short option differ only in exercise prices.

Applying "Price Spread" to Securities Exams:

A price spread or vertical spread consists of one long option and one short option of the same class with different strike prices. The position is normally called a price spread because of the difference in strike prices between the long and short options. It may also be called a vertical spread because of the way the options are listed in the option chain or in the newspaper. A price spread could be established in either calls or puts as follows: Example: Long 1 TRY May 40 call Short 1 TRY May 50 call A price spread could also be established using puts Long 1 TRY April 60 put Short 1 TRY April 50 put

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