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Back Spread




A back spread is essentially an inverted ratio spread.

When constructing a back spread, you are selling an option closer to the underlying market or even an in-the-money option while purchasing an out-of-the-money option premium at a ratio to the short option.


Additional Comments:

The back spread is designed for a low implied volatility scenario with the expectation of increasing implied volatility over time.

Back spreads are not short-term trades. They should be created as long term as possible and is even a potential for Long-term Equity Anticipation Security (LEAP) options.

Related Terms:

Backspread
A spread where more options (calls or puts) are bought than sold (the opposite of a ...

Ratio Spreads
Ratio spreads are an evolution of the bull call or bear put spread. They combine long ...

Volatility Stops
Monitoring implied volatility is critical in long neutral delta trading. Check the current volatility of the ...





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