back spread

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The strategy of selling an option near to or at the money (see at-the-money option) and using the premium to buy a number of the same types of option out of the money (see intrinsic value). If this is a call option, a profit will be made if the price of the underlying rises markedly. If the option is a put, then money will be made if the value of the underlying falls dramatically.

Subjects: Financial Institutions and Services.

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