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Box spread

A four-leg combination of a bull call spread and a bear put spread that locks in a fixed value — used mainly as a cash-like financing trade.

A box spread combines a bull call spread and a bear put spread on the same underlying, using the same two strikes and expiration. Because the four legs together lock in a fixed payoff no matter where the stock ends up, the position behaves almost like a bond: you know today exactly what it will be worth at expiration. That known value is simply the difference between the two strikes.

Traders mainly use boxes to borrow or lend cash inside a margin account. Selling a box brings in premium now and obligates you to pay the strike width later, which is effectively taking out a short-term loan at an implied interest rate. Buying a box does the opposite, parking cash for a small guaranteed return. Say the strikes are 100 and 110: the box is worth 10 at expiration, so if you can buy it for 9.60 you earn the 0.40 spread.

The classic mistake is treating a box as risk-free. On American-style options early assignment can break the structure, and commissions plus the bid-ask on four legs often eat the tiny edge. Only European-style index options with tight spreads make boxes genuinely clean, which is why retail traders rarely find them worthwhile.

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