Call Ratio Back Spread
Description
The Call Ratio Backspread is an exciting strategy that enables us to make accelerated
profits provided that the stock moves sharply upwards. Increasing volatility is very
helpful because we net long in calls. The worst thing that can happen is that the
stock doesnt move at all, and even a sharp move down can be profitable, or at the
very least, preferable to no movement at all.
The Call Ratio Backspread involves buying and selling different numbers of the
same expiration calls. Typically we buy and sell calls in a ratio of 2:1 or 3:2, so we
are always a net buyer. This gives us the uncapped profit potential. It also reduces
the net cost of doing the deal such that we can even create a net credit! Furthermore,
our risk is capped, though we need to investigate the strategy further in order to
understand it more.
P/L Profile
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