Options Horizontal Spread: What is Horizontal Spread in Options Trading? : Options, Futures, Derivatives & Commodity Trading

Options Horizontal Spread: What is Horizontal Spread in Options Trading?

Details about Horizontal Spreads in Options trading. Horizontal Spreads explained with Example

What is a Horizontal Spread in Options Trading?
When an Options trader takes multiple positions in various options so as to make a spread, but the options taken are such that they have different expiry dates, then the option spread formed is known as "Horizontal Spread".

How did the term "Horizontal Spread" came into existence for Options Trading?
This refers to the old days when option trading was newly introduced and there used to be no (or very less) electronic trading and more of floor trading. In those days, the option prices (basically option chains) were displayed on big boards such that the months were displayed horizontally and strike prices were displayed vertically. So any trader looking at the option prices for various months would have to scroll horizontally to check the option prices.
So going by that method, any option combinations which were varying in expiry dates started being called as "Horizontal Spreads".

Related: Vertical Spreads Explained

What are the common Horizontal Spread in Options Trading?
One of the most common Horizontal Spreads in options trading is the Calendar spread. It involves simultaneous purchase (or sale) of a near month option and sale (or purchase) of a far month option. Since the expiry dates of the two options involved here is different, it is called a horizontal spread.

Horizontal Spread in Options Trading
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