Bullish Limited Risk
Long call
- Easy to execute and manage
- The delta of a call tells you your exposure to changes in the stock
- The delta of a call will change with stock price movement and the passage of time
- Don't forget about time decay (negative theta)
- Keep in mind that volatility of the underlying and fluctuations in implied volatility (supply and demand for premium) affect option prices
Call Back Spread
- Long more higher strike calls and short lower strike call at same expiration
- Like a long call, it has unlimited upside profit potential with limited risk
- At expiration, the stock needs to be significantly above the long strike to make money
- This position has net long options, and is usually long volatility (vega)
- Be aware that a backspread can be initiated for a debit (pay for it) or credit (receive money for it)
- The potential liability is the difference between the strikes
