Options 101: The Call Backspread

A back spread, or ratio back spread, is a bullish spread that consists of selling a number of call options and buying more options of the same underlying stock with the same expiration date at a higher strike price. In other words, a back spread has more long contracts than short contracts. When reading this type of spread, the lower strike is generally stated first, whether it is long or short. Back spreads are very flexible, and can be executed for debits, credits, or even money when there is no debit or credit.

The back spread profits when the underlying stock price makes a move to the upside toward, through and beyond the long strike. The call back spread has limited risk and unlimited profit potential. The bigger the ratio of short options to long options, the more risk involved.