Callback Spread Option Strategy

What are the Characteristics of this Option Strategy?

The call ratio backspread is a strategy utilized by bullish investors to limit their losses while expecting a considerable increase in the underlying security or stock.

Is this a Bullish, Bearish or Neutral Strategy?

The Callback Spread Option Strategy is a bullish strategy

Is this a Beginner or an Advanced Option Strategy?

The Callback Spread Option Strategy is an advanced options strategy, primarily because managing the trade requires knowledge of technical analysis and the ability to adjust the position when the stock moves against you.

In what Situation will I use this Strategy?

Bullish investors employ the call ratio backspread strategy to restrict their losses while anticipating a notable surge in the underlying security or stock. The strategy involves buying a larger quantity of call options and selling a smaller quantity of calls with the same expiration date but a different strike.

Where does this Strategy Typically fall in the Range of Risk-Reward and Probability of Profit?

The Callback Spread Option Strategy offers a relatively high risk-reward ratio.

Where does this Strategy Typically Fall in the Range of Commissions and Fees?

The Callback Spread Option Strategy generally falls into the low range of commissions and fees, as most brokers charge fixed fees for options trades, regardless of their size. This makes this an ideal strategy for traders who are trading large positions.

Is this a Good Option Income Strategy?

The Callback Spread Option Strategy can be an effective option income strategy, as it offers limited risk with the potential to generate higher returns.

How do I Know When to Exit this Strategy?

When trading the Callback Spread Option Strategy, it is important to know when to exit the trade. The optimal time to exit is when the stock price approaches resistance and fails to further move up.

How will Market Makers Respond to this Trade Being Opened?

Market makers typically respond to the opening of a Callback Spread Option Strategy by adjusting the bid and ask prices of the option contracts in order to ensure a profit. In addition, they may adjust their volatility expectations in order to protect their profits.

What is an Example (with Calculations) of this Strategy?

As an example, consider the following scenario:

For example, let’s say the current price of MSFT is $276.2. The investor believes that the stock MSFT is bullish till the expiration date of the contracts. The investor will buy 2 ATM option contracts of $275 and sell one ITM MSFT Call with a strike of $260 of near expiry. Higher the MSFT goes, more the profit. Typically, the investor would be risking a limited amount to potentially gain a decent return. The investor will lose money only when the MSFT stays between $255.85 and $279.11 with a maximum potential loss of $1039.26 and maximum profit of $4478.73.

How Can MarketXLS Help it?

MarketXLS helps you identify potential Callback Spread Option Strategies easily, quickly and accurately with its Married Puts Tool. It also allows you to identify option spreads which may offer the maximum potential reward with least risk. The MarketXLS Married Puts Tool also makes it easy to track your options trades, view the Greeks of your options, and calculate your break-even points and maximumprofit and loss levels. Finally, MarketXLS also makes it easy to adjust your option trades if the market moves against you.

Here are some templates that you can use to create your own models

Call Backspread Option Strategy
Call Ratio Back-Spread

Search for all Templates here: https://marketxls.com/templates/

Relevant blogs that you can read to learn more about the topic

What is the Risk Associated with Leap Options Investing?
The Benefits of Using Call Credit Spreads for Trading
Option Strategies For Professional Traders
ITM Options: A Strategic Investing Tool
Calls And Call Ratio Backspread (Explained With Real Time Data)