Bullish CRBS

Call Ratio Backspread Strategy

Unlimited upside for cheap — the inverted ratio spread for explosive rallies.

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What is the Call Ratio Backspread Options Strategy?

A Call Ratio Backspread is the inverse of a Ratio Spread. Instead of selling more than you buy, you BUY more than you sell. You sell 1 ATM call and buy 2 OTM calls. The short call funds most of the cost.

If the stock makes a huge move up, your two long calls profit massively. If the stock drops, you might keep a small credit. The risk zone is in between — a moderate rise where your short call loses money but your long calls haven't kicked in yet.

This is the strategy for when you believe something explosive is coming but want to enter cheaply.

Why is it Called "Call Ratio Backspread"?

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"Backspread" means the ratio is reversed — you buy MORE than you sell (opposite of a ratio spread). "Call" because all options are calls. "Ratio" because the quantities differ (2:1 buy-to-sell). It backs up the regular ratio spread.

How Does the Call Ratio Backspread Trade Work?

  1. 1 Step 1 — You expect a massive rally (earnings, takeover, breakout).
  2. 2 Step 2 — Sell 1 call near the current price (generates premium).
  3. 3 Step 3 — Buy 2 calls at a higher strike (uses that premium).
  4. 4 Step 4 — Entry is cheap or even a small credit.
  5. 5 Step 5 — If stock explodes higher, both long calls profit massively. If it drops, the short call decays and you keep the credit.

Types of Call Ratio Backspread Strategies

Most Common

1×2 Call Ratio Backspread

Sell 1 lower call, buy 2 higher calls. Cheap or credit entry. Unlimited profit above. Dead zone between strikes.

When to Use the Call Ratio Backspread Strategy?

  • ✓ Before a major catalyst where you expect a huge upside move
  • ✓ When IV is low — cheap long options
  • ✓ As a cheaper replacement for a Long Straddle if you have a bullish bias
  • ✓ When you want unlimited upside with minimal capital at risk

Profit and Loss of the Call Ratio Backspread

Before looking at the chart, here is a plain-English summary of what you can make and what you can lose.

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Maximum Profit

Unlimited above the higher strikes. The more the stock rallies, the more you make.

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Maximum Loss

Strike width minus net credit (in the dead zone). Occurs if the stock rises just to the short call strike.

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Breakeven Point

Upper breakeven = higher strike + max loss amount.

Call Ratio Backspread Payoff Diagram

The chart below shows how profit/loss changes with the underlying price at expiry. Green zone = profit, red zone = loss.

Call Ratio Backspread Payoff Diagram illustrating profit and loss zones over underlying price0Low priceHigh priceProfitLoss
Illustrative payoff at expiry — not to scale

Call Ratio Backspread Example Trade

RELIANCE at ₹2,500 Expiry: 21 days
ActionTypeStrikePremium
SellCall₹2,500+₹65
BuyCall₹2,600-₹30 × 2 = -₹60
Net Credit/Debit +₹5 (entered for a tiny credit!)
Max Profit Unlimited above ₹2,600
Max Loss ₹95 — if RELIANCE closes at ₹2,600 (the dead zone)
Breakevens: ₹2,695 (upper)
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RELIANCE gaps up to ₹2,800 after earnings. Two long calls worth ₹200 each = ₹400. Short call costs ₹300. Net profit: ₹105 for a trade entered for free.

Pros & Cons of the Call Ratio Backspread

✓ Advantages
  • Unlimited upside profit
  • Very cheap or free entry
  • Great before explosive catalysts
  • If stock drops, you keep the credit
✗ Disadvantages
  • Dead zone between strikes where you lose
  • Needs a BIG rally, not a moderate one
  • Short gamma — moderate moves hurt
  • Complex to manage mid-trade

Call Ratio Backspread Frequently Asked Questions

Test Yourself

Quick Quiz

Answer all questions and check your score.

1 A Call Ratio Backspread buys and sells in which ratio?

2 Maximum profit on a Call Ratio Backspread is:

3 The "dead zone" in a Call Ratio Backspread is:

4 Call Ratio Backspread is best before:

5 Compared to a Long Straddle, a Call Ratio Backspread: