Call Ratio Back Spread
Sell one call and buy two higher-strike calls, often for a net credit, to profit from a sharp rally with limited middle risk.
What is a Call Ratio Back Spread?
A Call Ratio Back Spread sells one lower-strike call and buys two (or more) higher-strike calls of the same expiry, in a 1:2 ratio. It is typically structured for a small net credit or zero cost. The two long calls give unlimited upside participation on a strong rally, while the single short call funds them. If the market falls, you simply keep the small credit. The danger zone is a modest rise that pins the underlying near the long strike at expiry — that is where the maximum loss sits.
Payoff Diagram
Profit & Loss at expiry
Per share (multiply by lot size 75). Gold dots mark breakeven points; green = profit, red = loss.
Construction
- Sell 1 ITM/ATM Call (lower strike).
- Buy 2 OTM Calls (higher strike), same expiry.
- Usually a net credit or near-zero cost.
When to Use It
Use when you are strongly bullish and expect a sharp, fast move up (or, at worst, a fall), but want to avoid loss if you are wrong to the downside. Best entered when IV is low so the extra long calls are cheap. Avoid if you expect a slow drift to the long strike.
The Greeks
Long Gamma and long Vega (benefits from rising volatility), Negative Theta near the danger zone.
Risks & Considerations
- Maximum loss occurs on a moderate rise that pins the long strike at expiry.
- Time decay hurts if the move does not happen quickly.
- A slow grind up into the long strike is the worst outcome.
Worked Example (Nifty)
Illustrative trade — lot size 75
Nifty 20,000. Sell 1× 20,000 CE ₹200, buy 2× 20,300 CE ₹90 (₹180). Net credit ₹20. Below 20,000 you keep ₹20 × 75 = ₹1,500. Worst case is at 20,300: loss = (300 − 20) × 75 = ₹21,000. Above ~20,580 profits grow without limit as both long calls run.