Most traders focus on credit spreads, iron condors, or covered calls when trading options. But one strategy remains underutilized—despite its huge upside potential and ability to generate profits even if the market drops: Back Ratio Call Spread.

The strategy – also called Call Back Ratio Spread or Call Ratio Back Spread – allows traders to take advantage of market volatility while starting the trade with a credit.

I talked to Carl Allen, an experienced retail trader from Kansas City, to understand the intricacies of this strategy. He has written extensively about the strategy on his website Datadrivenoptions.com.

Watch the interview about Back Ratio Call Spread

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What is a Back Ratio Call Spread?

A ratio spread involves buying and selling options in an unequal quantity to create a specific risk/reward profile. In the case of a Back Ratio Call Spread:

✅ You sell one call option (higher delta).
✅ You buy two call options (lower delta).

The key is selecting strikes so that the trade starts delta-neutral and collects a credit at entry. This means you get paid upfront, while still benefiting from strong upside potential if the stock makes a big move.

How the Back Ratio Call Spread makes money

The Back Ratio Call Spread benefits from:

✔ Unlimited upside: If the stock surges, the two long calls outperform the short call, leading to big profits.
✔ Downside protection: Since the trade starts with a credit, if the market drops and options expire worthless, you still keep the premium.
✔ Volatility advantage: This trade shines when the market is volatile and moves sharply in either direction.

However, there is one major risk—the dreaded “Death Valley”.

If the stock stays stuck in a slow grind upward, time decay (theta) works against the position, creating a loss. That’s why proper trade management is critical.

How to set up a Back Ratio Call Spread

Carl Allen recommends structuring the trade with delta-neutral positioning at entry. Here’s how:

1️⃣ Sell a call at 40 delta
2️⃣ Buy two calls at 20 delta
3️⃣ Ensure the total delta is close to zero

This structure allows the trade to adapt dynamically. If the market moves up, the delta turns increasingly positive, leading to bigger profits. If the market moves down, the trader keeps the premium collected at entry.

How to manage the Back Ratio Call Spread

Proper management is critical to avoid falling into “Death Valley”—the range where theta decay eats away at profits. Carl suggests:

✔ Exit or roll within 7 Days – Don’t hold until expiration to avoid excessive time decay.
✔ Monitor delta & roll the trade – If delta shifts too far, consider rolling the strikes to reset the position.
✔ Pair with put credit spreads – Combining with put credit spreads allows traders to use the same capital twice, improving efficiency.

Why this trade works best in volatile markets

During high-volatility environments, markets tend to make large moves rather than staying range-bound. Carl Allen successfully used this strategy in 2020 during the COVID crash, turning a 50% drawdown into an 80% gain as the market rebounded.

Backtests show that this strategy outperforms traditional call spreads in:

✔ Bear Markets (like 2022’s rate hike crash)
✔ Fast Recoveries (like the post-COVID rally)
✔ Periods of High Volatility

In contrast, standard call spreads often underperform due to their limited profit potential and risk of being overrun by market movement.

Is the Back Ratio Call Spread right for you?

In Carl Allen’s opinion, this trade is best for:

✅ Traders who want unlimited upside while starting with a credit
✅ Those who thrive in volatile markets and expect big moves
✅ Options sellers looking to hedge put credit spreads

However, it requires strict management to avoid losses.

Where to learn more

Check out Carl Allen’s article about the strategy on his website Datadrivenoptions.com