An unprofitable spread regardless of favorable market movements and due to large commissions charged upon the transactions. An alligator spread is usually used in the options market to describe a collection of put and call options that may not be profitable.

Pricing models and a more efficient market can help reduce the traditional spread on a security, but commissions create the alligator spread rather than market inefficiencies. The commissions are dependent on the brokers of a transaction, investors need to check the commission schedules carefully if they don’t want to see their profits eaten by the alligator spread.