Ratio Back Call Spreads – Options Strategy

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http://www.zacks.com – Kevin Matras goes over a seldom talked about options strategy called Ratio Back Call Spreads. Learn how it works and how you might be able to use them.


PutCall Ratio says:

Horrible example Back Ratios should ALWAYS be done for some type of CREDIT
call Back ratios for a credit ELIMINATES down side risk!
put Back ratios …the opp is truth . A back ratio is is Positive VOMMA so a spike in vol Helps this trade and interestingly enuff a crush in vol brings this trade closer to realizing its CREDIT taken in IF its done for a credit ..The risk is time decay near exp. or at expiration between the strike sold and the strike bought (the valley of death) as the guy says in the video(8:109:00 ) 1 x 2 is fine

Richard Sposato says:

When I do ratio backspreads which is my favorite strategy, I look for option chains that have close strike prices but large differences in price per share. E.G. Assume stock at 135. The 135 call six months out assume to be 6 per share and the 140 to be 2.50 per shares. A 2 to 1 ratio is a 50 cents per share credit transaction. These are hard to find but work well when you find them. I always set up spreads six months or more out, as I need a lot of need to be right. If the underlying investment declines a lot, I usually buy back the written calls which leaves me with a small profit and some way OTM calls. 

If one believes a security is going to have a big fall one can do a put ratio back spread. All the same rules but in the mirror. When one calls (pun intended) they are exciting. 

Andrew G. Bernhardt says:

It's better to trade deep in the money ratio spreads, and rather than 2:1, setup e.g. a 15:14 ratio call backspread.

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