Definition of Spread

Spread is (1) The difference between the bid and ask for a security. (2) The simultaneous purchase and sale of two calls or two puts on the same underlying security.

Applying "Spread" to Securities Exams:

Spread is the price difference between the bid and the ask for a security. Market makers on the NASDAQ are trying to make the spread by purchasing the security at the bid price and selling the security at the ask price. The spread in price between the bid and ask has narrowed significantly making making it more challenging for market makers to earn a profit from their market making activity.

An option spread is the simultaneous purchase and sale of two options of the same type on the same underlying security with different exercise prices, expirations months or both. An investor would establish an option spread to offset some of the risk associated with a single option position

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