A Box Spread is simply a combination of two vertical spreads. These spreads are used by professional Options traders who are trying to take advantage of a situation where the cost of the spreads (both verticals) is less than what the verticals would be worth when they expire.
They consider this to be a type of “synthetic loan” and the point of it is to create a risk-less payoff.
The typical Box spread is constructed like this:
- Buy the AAPL 139 Call
- Sell the AAPL 141 Call
- Buy the AAPL 141 Put
- Sell the AAPL 139 Put
