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.

BREAKING DOWN '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.

  1. Backspread

    A type of options spread in which a trader holds more long positions ...
  2. Bull Spread

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  3. Naked Call

    A naked call is an options strategy in which the investor writes ...
  4. Short Call

    A type of strategy regarding a call option, which is a contract ...
  5. Iron Butterfly

    An options strategy that is created with four options at three ...
  6. In The Money

    1. For a call option, when the option's strike price is below ...
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