Backspread


Backspread
A type of options spread in which a trader holds more long positions than short positions. The premium collected from the sale of the short option is used to help finance the purchase of the long options. This type of spread enables the trader to have significant exposure to expected moves in the underlying asset while limiting the amount of loss in the event prices do not move in the direction the trader had hoped for. This spread can be created using either all call options or all put options.

An example of a backspread using call options would be selling one $45 call option for $5 and purchasing two $50 call options for $2.10 each. The trader in this case would benefit from a large move past $50 because he/she is holding more long options than short.


Investment dictionary. . 2012.

Look at other dictionaries:

  • Backspread — The backspread is the converse strategy to the ratio spread and is also known as reverse ratio spread. Using calls, a bullish strategy known as the call backspread can be implemented.Call BackspreadThe call backspread (reverse call ratio spread)… …   Wikipedia

  • backspread — Less than normal price difference in arbitrage …   Black's law dictionary

  • backspread — Less than normal price difference in arbitrage …   Black's law dictionary

  • backspread — I. ˈ ̷ ̷ˌ ̷ ̷ intransitive verb Etymology: back (II) + spread 1. in stock speculation : to close the transactions previously made in a spreading operation 2. in stock speculation : to transfer a hedge from one market to another II …   Useful english dictionary

  • Call Ratio Backspread — A very bullish investment strategy that combines options to create a spread with limited loss potential and mixed profit potential. It is generally created by selling one call option and then using the collected premium to purchase a greater… …   Investment dictionary

  • Put Ratio Backspread — An investment strategy that combines options to create a spread which has limited loss potential and a mixed profit potential. It s created by combining long and short puts in a ratio such as 2:1 or 3:1 …   Investment dictionary

  • put ratio backspread — A complex options strategy adopted when one believes a stock price will decline but wants to protect against it rising. Bloomberg Financial Dictionary …   Financial and business terms

  • ratio backspread — Option strategy which involves two short calls (puts) and one long call ( put). LIFFE …   Financial and business terms

  • Debit spread — In finance, a debit spread, AKA net debit spread, results when an investor simultaneously buys an option with a higher premium and sells an option with a lower premium. The investor is said to be a net buyer and expects the premiums of the two… …   Wikipedia

  • Options spread — Spread option redirects here. For the American football offensive scheme, see Spread offense. Options spreads are the basic building blocks of many options trading strategies. A spread position is entered by buying and selling equal number of… …   Wikipedia


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