The Call Backspread options strategy is best used if you are expecting a large move up or down, but are more bullish than bearish.


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Strategy: Backspread with Calls

Call Backspread Option Graph

The Outlook: Bullish or bearish, but not neutral. The stock must fall or rise for the strategy to gain. Gain is limited to the downside.

The Trade: buy two Calls ATM and sell Call ITM.

Gains when: stock rises or falls past the breakeven points.

Maximum Gain: Unlimited to the upside, limited to the downside.

Loses when: stock does not rise or fall enough.

Maximum Loss : limited to the difference in strike prices - the initial credit.

Breakeven Calculation: Lower breakeven = Short Call strike + initial credit. Upper breakeven = Long Call Strike + difference in strike prices - initial credit.

Advantages compared to stock: limited risk, less capital needed, greater leverage, can gain from a move in either direction.

Disadvantages compared to stock: Position will lose if stock does not move, or does not move enough.

Volatility: after entry, increasing implied volatility is positive if the stock does not move, or rises.

Time: after entry, the passage of time is negative if the stock does not move, or rises.

Margin Requirement: The difference in strike prices x the number of shares short represented, less the initial credit.

Variations: See the Backspread with Puts if you think there is a greater chance of a sharp drop in the stock price.


  • This Backspread can be used if you expect a sharp stock price movement one way or the other, but are mostly leaning bullish. For instance, you may expect such a movement at earnings time on a stock that historically has large movements in reaction to the earnings report.
  • If you are purely bullish, buying a single ATM call would have a lower breakeven, a lower maximum loss, and more profit potential. This Backspread only makes sense if you want to allow for the possibility of a sharp downward movement as well as a sharp upward movement.
  • The strategy has limited profit potential to the downside, so you don't want to be "too" bearish. Use the Backspread with Puts if you are more bearish than bullish.
  • A somewhat similar strategy is the Straddle Purchase. Compared to a Straddle Purchase, this Backspread:
    • Is entered for a credit instead of a debit.
    • Has a lower maximum loss.
    • Cannot gain as much if the stock drops dramatically.
    • Has about the same profit potential to the upside.
  • Another similar strategy is a Butterfly Sale (aka reverse Butterfly). Compared to a Butterfly Sale, this Backspread:
    • Is entered for less of a credit.
    • Has a greater maximum loss.
    • Needs more movement to be profitable.
    • Has much more profit potential to the upside.


  • Since this strategy needs stock price movement to be profitable, if the stock does not move as expected, it is best to exit the trade with less than the maximum loss. Using the example graph, if the stock has not moved within two weeks (and you were expecting the movement by then), you can exit for a loss of about $100. If you just sit and wait, you may have to take a loss of over three times that much - $357.
  • If the stock drops, and you were really expecting a rise, it may be best to take whatever small gain or loss you have. Waiting could result in a reaction back to the worst possible price range.
  • If the stock rises over the upper breakeven point at any time, you will have a gain, but time will be working against you, and there is always the possibility of a reversal. You will need to decide if the stock is having a strong enough upward move to justify holding the position.


  • It is possible, but not likely, that you can get two free or nearly free long calls if the stock drops dramatically. Then you can close out just the short call, making a gain that may pay for or come close to paying for the long calls. Then you would need some sort of a rebound so the long calls could recover some of their value. If you try to plan in advance for this scenario, it probably won't occur often enough to be worthwhile. But if you are in a Backspread trade anyway, it may pay to remember it. See the Free Rides: Guaranteed Winning Trading Strategies? page for more.

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