Backspread Strategies in Stock Options Trading
A backspread is an options spread strategy under which the trader holds a greater number of long positions than short positions. Using a backspread strategy, the trader will use the premium they receive from selling short positions to fund the purchase of long options. A backspread can be created using either call or put options. The backspread is the converse to the ratio spread strategy and is often referred to as a reverse ratio spread.
Call backspread- a bullish strategy under which the trader writes some number of call options and purchases call options of the same underlying security and expiration but with a higher strike price.
Put backspread- a bearish strategy under which the trader writes a number of put options and purchases put options of the same underlying security and expiration but at a lower strike price.
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The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.
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