Floor and Ceiling Levels

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The lower and upper limits against which the expiration value is compared in order to produce the Settlement Value. The Settlement Value cannot be below the Floor or above the Ceiling

Spreads limit your risk exposure to a defined maximum and minimum. The floor and ceiling levels of spreads represent the boundaries of the price range you are trading when you trade the spread. Within that range, you are still trading the price movement in the underlying market.  However, if the underlying price goes above the ceiling or below the floor, the price of your spread doesn’t change. Your risk and reward are capped.

At the floor and ceiling the spread price stops moving. In between, the spread price moves with the price movement of the underlying market. In contrast to the fixed price at the floor and ceiling, in the middle of the range, that price movement is closely correlated to the price of the underlying. That allows you to the spread’s value in a way similar to the way you might trade the underlying within that price range.

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