BROWSE

Backspread

What is 'Backspread'

A type of options spread in which a trader holds more long positions than short positions. The premium collected from the sale of the short option is used to help finance the purchase of the long options. This type of spread enables the trader to have significant exposure to expected moves in the underlying asset while limiting the amount of loss in the event prices do not move in the direction the trader had hoped for. This spread can be created using either all call options or all put options.

Explaining 'Backspread'

An example of a backspread using call options would be selling one $45 call option for $5 and purchasing two $50 call options for $2.10 each. The trader in this case would benefit from a large move past $50 because he/she is holding more long options than short.


Further Reading


Hedging against a Price Rice Using Vertical Ratio Call Back Spread Strategy Formed by Barrier Options
www.ceeol.com [PDF]
… Technical University of Košice Faculty of Economics, Department of Finance Němcovej 32, 040 01 Košice E-mail: [email protected], [email protected] … Keywords: barrier options, vertical ratio call back spread strategy, SPDR gold shares …

The Back Spread and Its Functions of Chinese Classic Works in Korea in the Ming and Qing DynastiesThe Back Spread and Its Functions of Chinese Classic Works in Korea in the Ming and Qing Dynasties
en.cnki.com.cn [PDF]
… Technical University of Košice Faculty of Economics, Department of Finance Němcovej 32, 040 01 Košice E-mail: [email protected], [email protected] … Keywords: barrier options, vertical ratio call back spread strategy, SPDR gold shares …

Inverse vertical ratio put spread strategy and its application in hedging against a price dropInverse vertical ratio put spread strategy and its application in hedging against a price drop
www.ceeol.com [PDF]
… Technical University of Košice Faculty of Economics, Department of Finance Němcovej 32, 040 01 Košice E-mail: [email protected], [email protected] … Keywords: barrier options, vertical ratio call back spread strategy, SPDR gold shares …

Taxonomy of Arbitrage in Financial MarketsTaxonomy of Arbitrage in Financial Markets
link.springer.com [PDF]
… Technical University of Košice Faculty of Economics, Department of Finance Němcovej 32, 040 01 Košice E-mail: [email protected], [email protected] … Keywords: barrier options, vertical ratio call back spread strategy, SPDR gold shares …

Methodological basis for justification of the risk-oriented strategy development: the case of a grain trading companyMethodological basis for justification of the risk-oriented strategy development: the case of a grain trading company
www.um.edu.mt [PDF]
… Technical University of Košice Faculty of Economics, Department of Finance Němcovej 32, 040 01 Košice E-mail: [email protected], [email protected] … Keywords: barrier options, vertical ratio call back spread strategy, SPDR gold shares …



Q&A About Backspread


What does it mean to have significant exposure to expected moves in an underlying asset while limiting your losses?

You will have significant exposure to expected moves in an underlying asset while limiting your losses if you are using a backspread.

How can you limit your loss with a backspread?

The premium collected from the sale of the short option is used to help finance the purchase of the long options. This limits your losses if prices do not move in the direction that you had hoped for.

What does "backspread" mean?

Backspread means a strategy that involves buying more of an asset than you sell.

Is there any difference between creating a backspread using call and put options?

Yes, there is a difference between creating a backspread using call and put options because one uses calls and one uses puts.

What kind of spread can be created with either all call options or all put options?

A backspread can be created using either all call options or all put options.

How do you make money with backspreads?

You make money with backspreads by selling options and buying stock, or vice versa, depending on which way the market moves.

Why would someone use a backspread strategy?

A trader might use a backspread to reduce risk because they are betting that the price of an option will move in one direction or another.

What is a backspread?

A backspread is a type of options spread in which the trader holds more long positions than short positions.

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