Back-spread danger zone
Definition · Level 3 · Spreads & short options
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Where a back spread loses the most at expiry: the stock sitting at the long strike. There the short option has cost its full value and the long options are still worth nothing.
Example
Short 100 call, long two 105 calls: the worst result is a stock at 105.
Where Tradecraft teaches it
Level 3 · Spreads & short options, in the lesson “Back spreads: long volatility, capped loss”: Sell one option, buy two further out: a capped loss, a big gain on one side, and long volatility.
Related terms
- Call Back SpreadSell one call and buy two higher-strike calls.
- Put Back SpreadSell one put and buy two lower-strike puts.
- BodyThe middle strike of a butterfly, short in a long fly: where a long fly earns the most at expiration.
- Breakeven win rateHow often a trade must win just to net zero, treating each outcome as a full win or a full loss: max loss ÷ (max profit + max loss).
- Broken-Wing ButterflyA butterfly with one wing pushed out: buy one call, sell two, and buy one much further away, so the two wings are different widths.
- Broken-wing condorA condor whose two wings have different widths, e.g. an iron condor with a 5-wide put spread and a 10-wide call spread.