Snapshot
Legs
Sell 1 Lower-Strike Call + Buy 2 Higher-Strike Calls
Outlook
Strongly Bullish
Max profit
Unlimited
Max Loss
Difference between strike prices minus net credit (or plus net debit)
A call ratio backspread strategy involves selling one lower-strike call option and buying two higher-strike call options with the same expiration date. Traders put this on when options are cheap, and at those prices the one short call more than pays for both long calls, so the trade opens for a net credit. Traders implement this setup when they expect a huge upward move in the stock while maintaining a cushion if the stock falls instead.
Because you hold two long calls against one short call, your upside profit potential is completely unlimited if the stock rockets higher. Maximum loss occurs if the stock closes precisely at the higher strike price at expiration, while a stock drop allows you to retain any initial net credit collected.
Example
Stock
$100
Trade
- Sell one $100 Call for $3.00
- Buy two $105 Calls for $1.25 each
→ $0.50 credit ($50)
Breakevens
$100.50 / $109.50
Outcomes
- Stock at $105: -$450 Max Loss
- Stock ≤ $100: +$50 Credit Kept
- Stock > $109.50: Unlimited Profit Potential (e.g., +$550 at $115)