A Call Ratio Backspread is a sophisticated options trading strategy structured by selling a smaller number of lower-strike call options and simultaneously purchasing a larger number of higher-strike call options on the same underlying asset with identical expiration dates. This configuration is typically established for a net credit or minimal debit.
Mechanism
The strategy operates on the premise of capitalizing on significant upward price movements in the underlying cryptocurrency, coupled with an increase in implied volatility. The premium received from the sold calls partially or fully finances the purchase of more out-of-the-money calls, thereby leveraging potential gains from a strong rally while limiting downside risk if the price remains stable or declines.
Methodology
Traders deploy this strategic framework when anticipating substantial directional momentum in the crypto asset’s price, particularly after a period of consolidation or prior to a catalyst event. The design offers unlimited profit potential above the higher strike price, with the maximum loss typically contained between the two strike prices if the market moves against the initial directional bias.
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