#Backspreads & ratios
3 public posts on this topic.
Theory
Picking the Two Strikes on a Long-Dated Put Backspread: Three Yardsticks, Worked Out
Once the two strikes are set, the character of this structure is mostly decided. I ran cost, delta and standard deviation on a 60-day example to see where they meet, what changes between a 1x2 and a 1x3, and why index put skew works against it. All numbers are model outputs.
Theory
Backspread vs. Ratio Spread — Price, Not Strike, Decides Which Leg You Sell
Try to memorize whether you sell the higher or the lower strike and calls and puts will trip you up. I kept one sentence instead. Here's how it sorts the four structures, and how counting contracts tells me whether the risk is capped or open.
Theory
Backspreads and Naked Selling — The One Point I Look for First on a Payoff Chart
Structures with a big payoff have a spot where the chart dips deepest. For a backspread, that hole sits at the long strike. For a naked short call, there's no floor at all. I walked four structures all the way through with example numbers.