Call Back Spread is an option strategy wherin the investor holds more long option positions than short option positions, of the same underlying security and the same expiry.
This strategy is also referred to as Reverse Call Ratio Spread.
A good rule of thumb is to use a 2:1 call back spread ratio while entering into this strategy.
When to use this strategy?
This strategy is used when the investor is aggressively bullish on the underlying security.
How to build this strategy?
This strategy has two legs:
Leg 1 – Sell 1 ITM Call
Leg 2 – Buy 2 OTM Calls
Credit Spread/Debit Spread
This strategy is generally a Credit Spread. This can vary but but is usually unattractive if it is a Debit Spread.
The profit potential in this strategy is unlimited.
When is this strategy profitable?
The investor stands to earn large profits if the price of the underlying security rise significantly.
The investor faces limited risk in this strategy.
When is this strategy unprofitable?
Max loss occurs when the underlying security price at expiry is at the strike price of the long call.