Backspread - GetProfitable

A call backspread sells one lower-strike call and buys two higher-strike calls. Small moves do nothing or lose a little, but a large move in the right direction turns the extra long contract into an accelerating gain. The position is long gamma and long vega, which is the opposite of most retail income trades.

The pain is in the middle. Maximum loss sits at the long strike at expiration, where the short option is in the money and the longs have decayed to nothing. Traders who like backspreads generally put them on with plenty of time and close them before that decay bites.

Example: XYZ at $50. Sell one $50 call at $2.30, buy two $55 calls at $0.80 each, for a $0.70 credit. Below $50 you keep $70. Worst case is a $430 loss with XYZ at $55. Above $59.30 the position profits without limit.

See it drawn

Original diagrams for the ideas on this page. Illustrative, not real market data.

Buying a call: payoff at expiry. A 105-strike call bought for 3 loses that whole 3 if the price finishes at or below 105, breaks even at 108, then gains a dollar for every dollar higher. The loss is capped at the premium; the upside is not capped.