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Call Ratio Back spread
bullishCall Ratio back spread is extremely bullish strategy that expects high volatility in the stocks. It requires sharp upward move in the stock
Example:
| Instrument | Qty | Price |
|---|---|---|
| SELL NIFTY 15-Sep-26 23450 CE | 65 | 98.65 |
| BUY NIFTY 15-Sep-26 23500 CE | 130 | 72.75 |
When To Execute?
Call Ratio Back spread is a bullish strategy that is formed with little or no net cost thereby reducing overall risk. It requires aggressive move in the stock
Trade
Sell 1 lot ATM Call and Buy 2 lots OTM call. Net cost to establish the strategy is very low
Advantages
Reduced cost of formulating the strategy. In scenario were implied volatility of call is rising, it provides limited risk. Generates higher return in scenario where stock gives exponential return.
Disadvantages
Loss could be higher if the stock doesn�t give desired move. Not meant for an intermediate trader. Time decay could be harmful to the strategy as we are net long. Strike selection becomes key to success.
Maximum Profit
Maximum Profit is unlimited if the stock moves above higher strike call
Maximum Loss
Maximum loss is difference between the strike plus net outflow or less net inflow