Backspread vs. Ratio Spread — Price, Not Strike, Decides Which Leg You Sell

"In a backspread, do you sell the higher strike or the lower one?"

I tried to memorize the answer, and I mixed it up between calls and puts every single time. Eventually I stopped memorizing and kept one sentence.

Backspread = sell 1 expensive option, buy 2 cheap ones. A ratio spread (also called a front spread) is the exact mirror image — buy 1 expensive option, sell 2 cheap ones.

Which leg you sell isn't decided by whether the strike is higher or lower. It's decided by whether that option is the expensive one or the cheap one. This post is my record of sorting four structures with that one sentence.

📌 The strikes and option prices in this post ($40 · $12) are assumptions I picked to explain the structures. They are not real quotes. One contract = $100 per index point, held to expiration, with commissions and taxes left out.

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1. Which one is expensive

The expensive option is always the strike closer to where the index is right now. Calls and puts just point in opposite directions.

Calls   lower strike = more expensive    7,690 call $40  ·  7,730 call $12
Puts    higher strike = more expensive   7,690 put  $40  ·  7,650 put  $12

So the same rule, "sell the expensive one," means the lower strike for calls and the higher strike for puts. Almost all of the confusion comes from exactly this.

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2. The four structures at a glance

Structure	Sell	Buy	Move it's built for
Call backspread	Lower strike ×1 (7,690 call)	Higher strike ×2 (7,730 call)	A big move up
Put backspread	Higher strike ×1 (7,690 put)	Lower strike ×2 (7,650 put)	A big move down
Call ratio spread	Higher strike ×2 (7,730 call)	Lower strike ×1 (7,690 call)	A modest rise, then a stall
Put ratio spread	Lower strike ×2 (7,650 put)	Higher strike ×1 (7,690 put)	A modest drop, then a stall

Counting contracts tells you what kind of risk it is

More contracts bought  →  backspread family     →  loss is capped
More contracts sold    →  ratio (front) spread family  →  loss is open

Whether the strike is high or low comes second. When I look at a position, this count is the first thing I check.

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3. One structure at a time

Put backspread — built for a big drop

The structure sells the expensive 7,690 put and uses that premium to buy two cheap 7,650 puts. $40 − $12 × 2 = $1,600 credit.

Call backspread — built for a big rally

It sells the expensive 7,690 call and buys two cheap 7,730 calls. Again, $1,600 credit.

Put ratio spread — built for a modest drop

It buys one expensive 7,690 put and sells two cheap 7,650 puts. It points the opposite way from the backspread. The best outcome is the index stopping near 7,650; if it keeps falling below that, the one extra contract that was sold is what makes the loss grow.

Call ratio spread — built for a modest rise

It buys one expensive 7,690 call and sells two cheap 7,730 calls. The sweet spot is near 7,730; if the index keeps climbing past it, there is no limit to the loss on the upside.

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4. A combination that fits none of the four — selling two of the expensive one

After building the table, I ran the numbers on one more. Sell two of the expensive option, buy only one of the cheap one. This is a hypothetical example built from the same assumed prices — not a position anyone holds.

Sell  7,690 put × 2   @ $40   → +$8,000
Buy   7,650 put × 1   @ $12   → −$1,200
─────────────────────────────────────────
Credit                          +$6,800

That credit feels large. The combination doesn't match any of the four textbook structures above, but split it in two and you can see what it really is.

Split into	Legs	What it is
① Bull put spread	Sell 1 × 7,690 put + buy 1 × 7,650 put	The capped part · max loss (40 − 28) × 100 = $1,200
② Naked short put	Sell 1 × 7,690 put	The open part

Most of that $6,800 credit comes from piece ②, which is to say it's payment for taking on open risk. Below 7,650, this combination behaves essentially the same as a single naked short put.

In this hypothetical, there are two ways to close the structure.

• Adding one more long put at a lower strike makes it 2 long · 2 short, which puts a floor under the loss
• Selling one fewer 7,690 put turns it into an ordinary bull put spread

Either way, the credit shrinks, but not by the same amount. Selling one fewer 7,690 put gives up $4,000; buying one more lower-strike put costs only that put's price. The way I read it, the credit given up is the cost of closing the risk that was left open.

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5. Three things I count before I place the order

1. Am I on the side that bought more, or the side that sold more?
2. If I sold more, the excess contracts are uncovered
3. Have I written down, in dollars, what that excess would lose on a single −5% gap day?

How I find the maximum-loss point on a payoff chart is in Backspreads and naked selling, and the math for choosing the two strikes off the index is in The two strikes of a long-dated put backspread.

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⚠️ This is a record of how I tell option structures apart. It is not investment advice and does not recommend any security or strategy. The strikes and prices in this post are assumptions for illustration. Options trading can result in the loss of your entire investment, and structures with more contracts sold than bought can lose more than you put in. Your decisions and their outcomes are your own.