page_title: Backspread
section_title: Put backspread
hierarchical_section_title: Backspread / Put backspread
caption_attribution_description: English: An example profit and loss diagram of a Put Backspread options strategy. The black solid line represents the value of the position at expiry. The blue dashed line shows the value of the position at some time before the options expire and when there is substantial volatility.
context_page_description: The backspread is the converse strategy to the ratio spread and is also known as reverse ratio spread. Using calls, a bullish strategy known as the call backspread can be constructed and with puts, a strategy known as the put backspread can be constructed.
context_section_description: The put backspread is a strategy in options trading whereby the options trader writes a number of put options at a higher strike price (often at-the-money) and buys a greater number (often twice as many) of put options at a lower strike price (often out-of-the-money) of the same underlying stock and expiration date. Typically the strikes are selected such that the cost of the long puts is largely offset by the premium earned in writing the at-the-money puts. This strategy is generally considered very bearish but it can also serve as a neutral/bullish play under the right conditions.
  The maximum profit for this strategy is achieved when the price of the underlying security moves to zero before expiration of the options. Given these declarations:
  
  \begin{align}
  K_l & = \text{lower strike price} \\
  K_u & = \text{upper strike price} \\
  C_n & = \text{net credit per share} \\
  N & = \text{number of shares per options contract}
  \end{align}
  The maximum profit per put backspread combination can be expressed as:
  
  \text{Maximum Profit} = \left[ K_u - 2 \times \left( K_u - K_l \right) + C_n \right] \times N
  The maximum upside profit is achieved if the price of the underlying is at or above the upper strike price at expiration and can be expressed simply as:
  
  \text{Maximum Profit (upside)} = C_n\,
  The maximum loss for this strategy is taken when the price of the underlying security moves to exactly the lower strike at expiration. The loss taken per put backspread combination can be expressed as:
  
  \text{Maximum Loss} = \left( C_n + K_l - K_u \right) \times N
caption: An example profit and loss graph for a Put Backspread options strategy placed at a net credit. The solid black line shows the combined value of the position at expiration. The dashed blue line shows the combined value of the position some time before expiration and when there exists significant implied volatility in the options.
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