Call Ratio Backspread
A call ratio backspread is a combination of short calls at an at-the-money strike price and long calls at a higher strike price. Both sets of options have the same expiration date. This trade is a bullish position. The premium received from selling the at-the-money calls is used to subsidize the purchase of the out-of-the-money calls.
Profits are unlimited on the upside and losses are limited to the net debit if futures are trading at-the-money or below at expiration. Any ratio spread could result in a credit or a debit, depending on how volatility affects options prices. Maximum loss occurs if the long options expire at the strike price.
Position Premium Dollar Premium Delta Sell one $20 crude oil call $1.17 $1,170 -.52 Buy two $21 crude oil calls - Net debit - Net delta $0.75 $0.33 $1,500 $660 +.76 +.24 Maximum risk $1,330 per position Maximum profit Unlimited on the upside Break-even futures price $22.33 Position Premium Dollar Premium Delta Sell one $260 gold call $6.70 $670 -.50 Buy two $270 gold calls - Net credit - Net delta $3.00 $0.70 $600 $560 +.60 +.10 Maximum risk $9.30 $930 Maximum profit Unlimited on the upside Break-even futures price $279.30
THERE IS A RISK OF LOSS IN FUTURES TRADING AND IS NOT SUITABLE FOR
ALL INVESTORS. ONLY RISK CAPITAL SHOULD BE USED WHEN TRADING FUTURES.
Copyright 2008 Capitol Commodity Services, Inc. All Rights Reserved.
Education
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- Long At-the-Money Call
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