Spread options have a payoff determined by the difference between the prices of two assets and a fixed strike price.
A Futures spread option call's payoff is calculated as the difference between one futures contract and another less the strike. The put payoff is calculated as the strike less sum of the two futures.
Spread options are often called crack spreads, due to their use in the oil industr. "Crack" refers to crude oil contracts. Similarly Spark spreads refer to spreads related to the use of electricity.
Unlike Futures spread options, Extreme-Spread options are based on one underlying asset. These options are closer to look-back options than spread options, due to the way the payoff is calculated. An Extreme-Spread option's payoff is calculated by breaking the option in to two periods. One period starts at the beginning of the option, and ends at the First Period End Date. The second is the rest of the options life up to expiry. The payoff of a call (put) Extreme-Spread option at maturity is the positive part of the difference between the maximum (minimum) value of the underlying asset in the second (first) period and the maximum (minimum) value of the underlying asset in the first (second) period.
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