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Call Ratio Backspread

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Dictionary Says

Definition of 'Call Ratio Backspread'

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 Says

Investopedia explains 'Call Ratio Backspread'

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 Definitions

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    Put Ratio Backspread

    An investment strategy that combines options to create a spread which has limited loss potential and a mixed profit potential.
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    1. The period of time between the opening and closing of some future markets wherein the prices are established through an auction process.2. An option contract giving the owner the ...
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  • Spread

    1. The difference between the bid and the ask price of a security or asset. 2. An options position established by purchasing one option and selling another option of the same class but ...
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    • Bull

      An investor who thinks the market, a specific security or an industry will rise. Investors who takes a bull approach will purchase securities under the assumption that they can be sold ...
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      The price at which a specific derivative contract can be exercised. Strike prices is mostly used to describe stock and index options, in which strike prices are fixed in the contract. ...
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      1. In derivatives, the security that must be delivered when a derivative contract, such as a put or call option, is exercised. 2. In equities, the common stock that must be delivered ...
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    • Long (or Long Position)

      1. The buying of a security such as a stock, commodity or currency, with the expectation that the asset will rise in value.2. In the context of options, the buying of an options ...
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    • Short (or Short Position)

      1. The sale of a borrowed security, commodity or currency with the expectation that the asset will fall in value.2. In the context of options, it is the sale (also known as "writing") of ...
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