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?

a) short call, low exercise
b) long calls, medium exercise
• c) short call, high exercise
  Yes. The above spread combines long calls and a short call in a ratio of 2:1. Ratios used in its construction rarely exceed 3:1. Continue

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