– Glossary
Call ratio backspread
A directional trade with a hedging component that allows a trader to book a small profit or break even in the event that the trade moves against them. The risk is limited while the reward is unlimited. Call ratio backspreads involve selling a call at one strike and then buying two more calls at a higher strike price (other ratios can be used). The goal is to keep the ratio of calls sold to calls purchased under 0.67, allowing a credit to be received in order to profit from a strong move in either direction by the underlying security. (See also \"put ratio backspread\").
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