Call Ratio Backspread

A A A

DEFINITION

A very bullish investment strategy that combines options to create a spread with limited loss potential and mixed profit potential. It is generally created by selling one call option and then using the collected premium to purchase a greater number of call options at a higher strike price. This strategy has potentially unlimited upside profit because the trader is holding more long call options than short ones.

INVESTOPEDIA EXPLAINS

An investor using this strategy would sell fewer calls at a low strike price and buy more calls at a high strike price. The most common ratios used in this strategy are one short call combined with two long calls, or two short calls combined with three long calls. If this strategy is established at a credit, the trader stands to make a small gain if the price of the underlying decreases dramatically.


RELATED TERMS
  1. Call

    1. The period of time between the opening and closing of some future markets ...
  2. Long (or Long Position)

    1. The buying of a security such as a stock, commodity or currency, with the ...
  3. Underlying

    1. In derivatives, the security that must be delivered when a derivative contract, ...
  4. Option

    A financial derivative that represents a contract sold by one party (option ...
  5. Put Ratio Backspread

    An option trading strategy that combines short puts and long puts to create ...
  6. Bull

    An investor who thinks the market, a specific security or an industry will rise. ...
  7. Strike Price

    The price at which a specific derivative contract can be exercised. Strike prices ...
  8. Spread

    1. The difference between the bid and the ask price of a security or asset. ...
  9. Short (or Short Position)

    1. The sale of a borrowed security, commodity or currency with the expectation ...
  10. Multibank Holding Company

    A company that owns or controls two or more banks. Mutlibank holding companies ...
Related Articles
  1. Backspreads: Good News For Breakout ...
    Options & Futures

    Backspreads: Good News For Breakout ...

  2. Options Basics Tutorial
    Options & Futures

    Options Basics Tutorial

  3. The Basics Of The Long Ratio Backspread
    Options & Futures

    The Basics Of The Long Ratio Backspread

  4. Selling Premium As Small Caps Play Catch ...
    Options & Futures

    Selling Premium As Small Caps Play Catch ...

  5. Trade Like A Hedge Fund Master
    Options & Futures

    Trade Like A Hedge Fund Master

  6. Invest Like Madoff - Without The Jail ...
    Options & Futures

    Invest Like Madoff - Without The Jail ...

  7. How To Profit From Recent Market Divergence
    Options & Futures

    How To Profit From Recent Market Divergence

  8. Binary Options
    Options & Futures

    Binary Options

  9. What's the difference between binary ...
    Options & Futures

    What's the difference between binary ...

  10. Strip Options: A Market Neutral Bearish ...
    Options & Futures

    Strip Options: A Market Neutral Bearish ...

comments powered by Disqus
Hot Definitions
  1. Amplitude

    The difference in price from the midpoint of a trough to the midpoint of a peak of a security. Amplitude is positive when calculating a bullish retracement (when calculating from trough to peak) and negative when calculating a bearish retracement (when calculating from peak to trough).
  2. Ascending Triangle

    A bullish chart pattern used in technical analysis that is easily recognizable by the distinct shape created by two trendlines. In an ascending triangle, one trendline is drawn horizontally at a level that has historically prevented the price from heading higher, while the second trendline connects a series of increasing troughs.
  3. National Best Bid and Offer - NBBO

    A term applying to the SEC requirement that brokers must guarantee customers the best available ask price when they buy securities and the best available bid price when they sell securities.
  4. Maintenance Margin

    The minimum amount of equity that must be maintained in a margin account. In the context of the NYSE and FINRA, after an investor has bought securities on margin, the minimum required level of margin is 25% of the total market value of the securities in the margin account.
  5. Leased Bank Guarantee

    A bank guarantee that is leased to a third party for a specific fee. The issuing bank will conduct due diligence on the creditworthiness of the customer looking to secure a bank guarantee, then lease a guarantee to that customer for a set amount of money and over a set period of time, typically less than two years.
  6. Degree Of Financial Leverage - DFL

    A ratio that measures the sensitivity of a company’s earnings per share (EPS) to fluctuations in its operating income, as a result of changes in its capital structure. Degree of Financial Leverage (DFL) measures the percentage change in EPS for a unit change in earnings before interest and taxes (EBIT).
Trading Center