An “alligator spread” is a transaction is where the investor is unlikely to make much of a profit even if the markets move in the direction anticipated, primarily because the investor is “eaten alive” (as if by an alligator) by high commissions. The term ‘alligator spread” has been cited in print since at least February 1977.
Definition of ‘Alligator Spread’
An unprofitable spread that occurs as a result of large commissions charged on the transaction, regardless of favorable market movements. An alligator spread is usually used in the options market to describe a collection of put and call options that may not be profitable.
27 February 1977, New York (NY) Times, “Commentary: Getting Alive in the Options Game” by Albert Haas Jr., pg. 101:
Cynics contend the most popular is the “alligator spread"-the broker makes a great deal of money, and the client gets eaten alive by commissions.
Google News Archive
11 April 1977, The Gazette (Montreal, Quebec), “Option trade booms in U.S.” by Ian Anderson, pg. 21, col. 3:
One jaded options player said the favorite options technique is the “alligator spread—the broker makes a great deal of money while the client gets eaten alive by commissions.”
Volume 127, Issues 8-13
“Call it an alligator spread,” says Gastineau. “Transaction costs will eat you alive.”
Words of Wall Street:
2,000 investment terms defined
By Allan H. Pessin and Joseph A. Ross
Homewood, IL: Dow Jones-Irwin
ALLIGATOR SPREAD Slang for an option spread position that offers more in commission dollars to an account executive than to a client who accepts the risks of the spread. In effect, the client’s potential profit on the position is eaten up by the cost of the transaction.
Fundamentals of Investing
By Lawrence J. Gitman and Michael D. Joehnk
New York, NY: Harper & Row
Alligator spread. Any options transaction in which commissions eat up all potential profit.
High Steppers, Fallen Angels, and Lollipops:
Wall Street Slang
By Kathleen Odean
New York, NY: Dodd, Mead
A broker who blows a customer out after a point makes a commission at the customer’s expense, but the picture of “blowing out” surpasses the financial harm it describes. So, too, the facetiously named alligator spread, in which the brokers’ cimmissions eat up the customers’ profits, is hardly the equivalent of being devoured by an alligator.
Barron’s Finance and Investment Handbook
By John Downes and Jordan Elliot Goodman
New York, NY: Barron’s Educational Series
ALLIGATOR SPREAD spread in the options market that “eats the investor alive” with high commission costs. The term is used when a broker arranges a combination of puts and calls that generates so much commission the client is unlikely to turn a profit even if the markets move as anticpated.
Vail (CO) Daily
Wednesday, September 22, 2004
Wall Street’s menagerie
Alligator: An “alligator spread” in the options market “eats the investor alive” with high commission costs.
Jonbull’s Stock Guide:
How to Invest Profitably in a Volatile Stock Market
By J. P. Obienugh
Victoria, BC: Trafford On Demand Pub
Alligator spread – The term used to describe a spread in the options market that generates such a large commission that the client is unlikely to make a profit even if the markets move as the investor anticipated.
New York City • Banking/Finance/Insurance • (0) Comments • Monday, June 25, 2012 • Permalink