Strategy Overview
Medium RiskAdvancedVolatile
A back spread (or backspread) involves selling one option and buying two options at a different strike. It profits from large moves and has limited risk near the short strike.
Max Profit
Unlimited (in direction of long options)
Max Loss
Strike difference - net credit (if done for credit)
Breakeven
Varies based on credit/debit and strikes
Probability
~35% win rate
hist. est.
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Example Setup Calculator
$
Debit Paid
$200
Max Profit
$300
Max Loss
$200
Breakeven
$102.00
Strategy Components
SELL ATM CALL
Sell 1 ATM option
BUY OTM CALL
Buy 2 OTM options
When to Use
- You expect a very large move in one direction
- You want unlimited profit potential
- IV is low and expected to expand
- You want limited risk in the worst case
Best Market Conditions
- Low IV expected to expand
- Major catalyst upcoming
- Breakout expected
Best Practices
- Try to establish for a credit
- Give yourself plenty of time - 60+ DTE
- Best before major catalysts
- Risk zone is between the strikes
Ready to Trade?
Review Back Spread and practice it in paper trading with the school workflow.
Paper Trading