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 received:
Potential Profit
  • When the stock price/index level is below the lower break-even point, limited to net premium received
  • When the stock price/index level is above the upper break-even point, unlimited & equals to the stock price/index level minus the upper break-even point
Maximum Loss
  • When the stock price/index level is between the upper and lower break-even point
  • Equals to the strike price/level difference minus net premium received
Time Value Impact Negative
Break-even
  • The lower break-even point equals to lower strike price/level plus net premium received
  • The upper break-even point equals to upper strike price/level plus strike price/level difference minus net premium received
Remarks Compared with long straddle, a Ratio Call Back Spread (with net premium received) has unlimited profit on the upside but limited profit on the downside.
Example
  Net Position -1 May 180 Call +2 May 200 Call

Component Sell 1 ABC May $180 Call, receive $35 and buy 2 ABC May $200 Call each at $16, totally pay $32
Net Premium Receive $35-$32=$3
Break-even
  • Lower: $180+$3=$183
  • Upper: $200+($200-$180)-$3=$217
Profit when Stock price is below $183 or above $217
Potential Profit
  • When stock price is below $183, limited to $3
  • When the stock price is above $217, stock price - $217
Potential Loss ($200-$180)-$3=$17
Time Value Impact Negative

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