Backspread
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The backspread is the converse strategy to the ratio spread and is also known as reverse ratio spread. Using calls, a bullish strategy known as the call backspread can be implemented.
[edit] Call Backspread
The call backspread (reverse call ratio spread) is a bullish strategy in options trading whereby the options trader writes a number of call options and buys more call options of the same underlying stock and expiration date but at a higher strike price. It is an unlimited profit, limited risk strategy that is used when the trader thinks that the price of the underlying stock will rise sharply in the near future.
A 2:1 call backspread can be created by selling a number of calls at a lower strike price and buying twice the number of calls at a higher strike.
[edit] See also
[edit] References
- McMillan, Lawrence G. (2002). Options as a Strategic Investment, 4th ed., New York : New York Institute of Finance. ISBN 0-7352-0197-8.
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