Chapter 06 · Section 6.1
Butterfly Call Spreads
The call ratio backspread is similar in contruction to the short butterfly call spread you looked at in the previous section. The only difference is that you omit one of the components (or legs) used to build the short butterfly when constructing a call ratio backspread.
Looking at the graph, which of the legs do you omit from the short butterfly to construct a call ratio backspread?
b) long calls, medium exercise
No. The long calls offset the premiums gained from the short calls but also gives you the possibility of profit if the underlying increases.
c) short call, high exercise
a) short call, low exercise
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