A vertical spread buys one and sells one. Ratio strategies break that symmetry — trading a different number of contracts on each side to shape an unusual payoff (and often to enter for little or no cost).
Ratio spread (sell more than you buy)
Classic example — a call ratio spread: buy 1 call, sell 2 higher-strike calls.
- Often opened for a credit or near-zero cost.
- Profits best if the stock drifts up to the short strike.
- But because you’re short an extra option, there’s uncovered risk beyond the short strikes — a sharp move can be dangerous. This is a defined-reward, undefined-risk trade unless you cap it.
Backspread (buy more than you sell)
The inverse — a call backspread: sell 1 call, buy 2 higher-strike calls.
- Often opened for a small credit or debit.
- Limited risk, and large (even unlimited) reward on a big move in your favour.
- The trade-off: a small, contained loss zone if the stock lands right between the strikes at expiry.
Backspreads are a way to be long volatility cheaply — you want a big move and you’re protected if you’re wrong about direction.
Reading the asymmetry
| Contracts | Risk | Reward | Wants | |
|---|---|---|---|---|
| Ratio spread | sell > buy | undefined* | capped | small drift |
| Backspread | buy > sell | limited | large | big move |
*undefined unless you add a protective wing.
Use with care
These shine when you have a specific view on how far and how fast the underlying will move — not just up or down. The extra short (or long) contract is leverage on volatility, and leverage cuts both ways. Model the payoff carefully and know exactly where your risk lives before you put one on.