What Is a Box Spread?
A box spread is a complex derivatives trading strategy designed to generate a nearly risk-free profit by exploiting minor pricing inefficiencies in the market. It falls under the umbrella of arbitrage strategies, meaning it aims to capture profits from price discrepancies between equivalent assets or strategies. A box spread involves simultaneously buying and selling call options and put options with different strike prices but the same expiration date on the same underlying asset. Essentially, it constructs a synthetic long position in one strike and a synthetic short position in another, aiming for a fixed payoff at expiration.
History and Origin
The modern options market, which facilitated the widespread adoption of strategies like the box spread, has roots stretching back centuries. Early forms of options were used in ancient Greece and by merchants in 17th-century Netherlands19. However, the standardization and widespread trading of options truly began with the establishment of the Chicago Board Options Exchange (Cboe) in 197315, 16, 17, 18. Before the Cboe, options were primarily traded over1[2](https://fastercapital.com/[13](https://www.optionsplaybook.com/options-introduction/stock-option-history), 14startup-topic/Life-Examples-of-Negative-Arbitrage.html)3[4](https://www.researchgate.net/publication/242603416_Bo[11](https://www.optionstrading.org/history/), 12x_Spread_Strategies_and_Arbitrage_Opportunities)5, [6](https://www.sec.gov/ne[8](https://ideas.repec.org/a/oup/rfinst/v2y1989i1p91-108.html), 9, 10wsroom/press-releases/2020-269), 7