Disclaimer
Analysis Techniques & Strategies
To create a Backspread Call 1x2, you would sell a Call at a lower strike price and purchase a greater number of Calls at a higher strike price. This is a bullish strategy that has unlimited reward if the underlying asset increases dramatically in price. The position can be opened with a small credit or small debit, depending on the strike prices and premiums of the options. This strategy is normally used with volatile stocks when there is a potential for implied volatility to rise, and the underlying asset price direction bias is bullish.
The reward in this strategy is unlimited because of the greater number of Calls bought in relation to the number of Calls sold. The maximum risk is limited to exposure of the Calls sold, but is reduced if the Calls sold expire worthless or the underlying asset drops significantly in price.
Here is an example of this option strategy:
Short 1 XYZ OCT 50 Call + $5.50 you sell ($ money in)
Long 2 XYZ OCT 55 Call - $3.00 you purchase ($ money out)
Result: - $ 0.50 debit per contract (100 shares)
| Risk Factor | Effect |
| Price Sensitivity [Delta] | Position benefits from a large increase in the asset |
| Time Decay [Theta] | Position is hurt by the passage of time |
| Volatility Sensitivity [Vega] | Position benefits from an increase in volatility |
Maximum Gain is unlimited; maximum loss is limited at the strike price of the options bought.