Call Backspread

Psychology:

A call backspread strategy, also referred to as a ratio spread, involves selling a single in-the-money call option contract and buying two out of-the-money call option contracts. Investors are prudent when using a call backspread when they are bullish toward volatility and bullish toward the underlying asset’s share price. The call backspread strategy is similar to a short straddle. The difference between the two strategies is that the investor’s losses for call backspread are limited as the market goes down. Sometimes you can initiate the backsrpead for a small credit.

Risk / Reward:

Maximum Loss: Limited to the total premium.

Maximum Gain: Unlimited at the underlying asset’s share price goes up (could have small credit if stock goes down).