Options Strategies
Ratio Call Back Spread
Strategies Ratio Call Back Spread
Component Sell 1 call with lower strike price/level and buy 2 call with higher strike price/level
1. Result in net premium received
2. Result in net premium paid
When there is net premium paid:
Potential Profit When the stock price/index level is above the break-even point, unlimited & equals to the stock price/index level minus the break-even point
Maximum Loss
  • When the stock price/index level is below the break-even point
  • Limited to the strike price/level difference plus net premium paid. Maximum loss exists when the stock price/level is equal to the upper strike price/level
Time Value Impact Negative
Break-even
  • Only one break-even point exists
  • Equals to upper strike price/level plus strike price/level difference plus net premium paid
Remarks Compared with long straddle, a Ratio Call Back Spread (with net premium paid) has unlimited profit on the upside but limited loss on the downside.
Example
  Net Position -1 May 180 Call +2 May 200 Call

Component Sell 1 ABC May $180 Call, receive $30 and buy 2 ABC May $200 Call each at $20, totally pay $40
Net Premium Pay $40-$30=$10
Break-even $200+($200-$180)+$10=$230
Profit when Stock price is above $230
Potential Profit Stock price - $230
Potential Loss ($200-$180)+$10=$30
Time Value Impact Negative

Back