Call Ratio Back Spread
- Front Spreads involve selling more options than are bought.
- Back Spreads involve buying more options than are sold.
The Call Ratio Front Spread is essentially the inverse of the Call Ratio Back Spread. This strategy typically involves buying more call options than the number of call options sold. It’s a bullish strategy used when a significant upward movement in the price of the underlying asset is anticipated. Traders sell fewer calls at a lower strike price and buy more calls at a higher strike price.
Setup:
- Sell ATM/OTM Call Option – 1 Lot
- Buy Far OTM Call Options – 2 Lots
Different Strikes for Same OTM Calls:
Example:
- Buy 32000CE at 70.5 – 2 Lot
- Short 31900CE at 110 – 1 Lot
The payoff graph looks like –
Different Strikes for Distant OTM Calls:
Example –
- Sell 640CE at 16.9 – 1 Lot
- Buy 660CE at 10.1 – 1 Lot
- Buy 680CE at 6.05 – 1 Lot
The payoff graph looks like –
