The Call Backspread (reverse Call Ratio Spread) is a bullish strategy in options trading that involves selling a number of call options and buying more call options of the same underlying stock and expiration date at a higher strike price. It is an unlimited profit, limited risk options trading strategy that is taken when the options trader thinks that the underlying stock will experience significant upside movement in the near term.
Sell 1 call at the lower strike price; Buy 2 calls at the higher strike price. Use the same expiration date.
A 2:1 Call Backspread can be implemented by selling a number of calls at a lower strike and buying twice the number of calls at a higher strike.
Unlimited Profit Potential
The call back spread profits when the stock price makes a strong move to the upside beyond the upper breakeven point. There is no limit to the maximum possible profit.
Unlimited as the stock price rises.
Limited Risk
Maximum loss for the call back spread is limited and is taken when the underlying stock price at expiration is at the strike price of the long calls purchased. At this price, both the long calls expire worthless while the short call expires in the money. Maximum loss is equal to the intrinsic value of the short call plus or minus any debit or credit taken when putting on the spread.
Higher strike price plus net opening cost minus lower strike price.
Breakeven Point(s)
There are 2 break-even points for the Call Backspread position. The breakeven points can be calculated using the following formulae.
The breakeven can change depending on which strikes the stock finishes between.
Calculate the breakeven prices
- Prices at or below the lower strike price all break even only when the net opening cost equals zero.
- Lower strike price minus net opening cost. Use this result only if it is between the lower strike price and the higher strike price.
- Net opening cost plus twice the higher strike price minus lower strike price. Use this result only if it is at or above the higher strike price.
Ignore results below zero. A boundary price listed twice is a single breakeven.
Example
Suppose XYZ stock is trading at $43 in June. An options trader executes a 2:1 Call Backspread by selling a JUL 40 call for $400 and buying two JUL 45 calls for $200 each. The net debit/credit taken to enter the trade is zero.
On expiration in July, if XYZ stock is trading at $45, both the JUL 45 calls expire worthless while the short JUL 40 call expires in the money with $500 in intrinsic value. Buying back this call to close the position will result in the maximum loss of $500 for the options trader.
If XYZ stock rallies and is trading at $50 on expiration in July, all the options will expire in the money. The short JUL 40 call is worth $1000 and needs to be bought back to close the position. Since the two JUL 45 call bought is now worth $500 each, their combined value of $1000 is just enough to offset the losses from the written call. Therefore, he achieves breakeven at $50.
Beyond $50 though, there will be no limit to the gains possible. For example, at $60, each long JUL 45 call will be worth $1500 while his single short JUL 40 call is only worth $2000, resulting in a profit of $1000.
If the stock price had dropped to $40 or below at expiration, all the options involved will expire worthless. Since the net debit to put on this trade is zero, there is no resulting loss.
These examples use standard U.S. stock options with a 100-share contract size and matching expiration dates. Related structures can use ETF, index or futures options, but contract multipliers, exercise style, settlement and the underlying price range can differ. A stock’s zero price floor must not be assumed for every futures contract.
Commissions
For ease of understanding, these examples exclude commissions, fees and financing costs. Include all costs when comparing an actual position; there is no universal commission amount.
For active traders, transaction costs can consume a significant part of returns. Compare the full commission and fee schedule, exercise and assignment charges, and bid-ask spreads. The cost of entering and closing every leg matters.
Similar Strategies
The following strategies offer related market exposure. Compare their construction, cost, maximum loss and assignment obligations; a similar outlook does not mean identical risk.
Ratio Spread
The converse strategy to the backspread is the ratio spread. Ratio spreads are used when little movement is expected of the underlying stock price.
Put Backspread
The backspread can also be constructed using puts. Unlike the Call Backspread, the Put Backspread is a bearish strategy.
Before expiration and assignment
The diagrams and worked outcomes describe expiration payoffs, not an option’s market price before expiration. Time decay, implied volatility, rates, dividends and bid-ask spreads affect early closing values. American-style short options can be assigned early; a protective long option is not automatically exercised when a short leg is assigned. Closing or exercising one leg can change the remaining position’s risk.
Net opening cost means everything paid to open the position, less everything received. Include the shares as well as the options. If opening the position brings in money overall, treat that cost as a negative amount.
Amounts are per share before fees. Multiply by the shares covered by the position; standard equity options usually cover 100 shares per contract. If a maximum profit or loss calculation gives a negative amount, use zero. These figures assume matching contracts held to expiration and do not include financing or early assignment.
Compare This Strategy
Optional further reading to help you compare the tradeoffs.
- ZEBRA vs Call Backspread — The ZEBRA is a bullish stock-replacement structure with a substantial debit.
- Ratio Spread vs Backspread — A front Call Ratio Spread targets a controlled rise toward the short strike, but can lose without limit after a very large rally.
Financial mechanics reviewed:
Sources: OIC strategy reference; OIC assignment guidance. Formulas use the stated payoff assumptions; examples are illustrative, not market quotes. Editorial standards and corrections.
Advanced Strategy Variations
Build on the core strategies with these less common structures. Match the option legs and expirations when comparing names.