Module 6   Option StrategiesChapter 4

Call Ratio Back Spread

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4.1 – Background

The Call Ratio Back Spread is an interesting options strategy. I call this interesting keeping in mind the simplicity of implementation and the kind of pay off it offers the trader. This should certainly have a spot in your strategy arsenal. The strategy is deployed when one is out rightly bullish on a stock (or index), unlike the bull call spread or bull put spread where one is moderately bullish.

At a broad level this is what you will experience when you implement the Call Ratio Back Spread-

  1. Unlimited profit if the market goes up
  2. Limited profit if market goes down
  3. A predefined loss if the market stay within a range

In simpler words you can get to make money as long as the market moves in either direction.


Usually, the Call Ratio Back Spread is deployed for a ‘net credit’, meaning money flows into your account as soon as you execute Call Ratio Back Spread. The ‘net credit’ is what you make if the market goes down, as opposed to your expectation (i.e market going up). On the other hand, if the market indeed goes up, then you stand to make an unlimited profit. I suppose this should also explain why the call ratio spread is better than buying a plain vanilla call option.

So let’s go ahead and figure out how this works.

4.2 – Strategy Notes

The Call Ratio Back Spread is a 3 leg option strategy as it involves buying two OTM call option and selling one ITM Call option. This is the classic 2:1 combo. In fact the call ratio back spread has to be executed in the 2:1 ratio meaning 2 options bought for every one option sold, or 4 options bought for every 2 option sold, so on and so forth.

Let take an example – assume Nifty Spot is at 7743 and you expect Nifty to hit 8100 by the end of expiry. This is clearly a bullish outlook on the market. To implement the Call Ratio Back Spread –

  1. Sell one lot of 7600 CE (ITM)
  2. Buy two lots of 7800 CE (OTM)

Make sure –

  1. The Call options belong to the same expiry
  2. Belongs to the same underlying
  3. The ratio is maintained

The trade set up looks like this –

  1. 7600 CE, one lot short, the premium received for this is Rs.201/-
  2. 7800 CE, two lots long, the premium paid is Rs.78/- per lot, so Rs.156/- for 2 lots
  3. Net Cash flow is = Premium Received – Premium Paid i.e 201 – 156 = 45 (Net Credit)

With these trades, the call ratio back spread is executed. Let us check what would happen to the overall cash flow of the strategies at different levels of expiry.

Do note we need to evaluate the strategy payoff at various levels of expiry as the strategy payoff is quite versatile.

Scenario 1 – Market expires at 7400 (below the lower strike price)

We know the intrinsic value of a call option (upon expiry) is –

Max [Spot – Strike, 0]

The 7600 would have an intrinsic value of

Max [7400 – 7600, 0]

= 0

Since we have sold this option, we get to retain the premium received i.e Rs.201

The intrinsic value of 7800 call option would also be zero; hence we lose the total premium paid i.e Rs.78 per lot or Rs.156 for two lots.

Net cash flow would Premium Received – Premium paid

= 201 – 156

= 45

Scenario 2 – Market expires at 7600 (at the lower strike price)

The intrinsic value of both the call options i.e 7600 and 7800 would be zero, hence both of them expire worthless.

We get to retain the premium received i.e Rs.201 towards the 7600 CE however we lose Rs.156 on the 7800 CE resulting in a net payoff of Rs.45.

Scenario 3 – Market expires at 7645 (at the lower strike price plus net credit)

You must be wondering why I picked the 7645 level, well this is to showcase the fact that the strategy break even is at this level.

The intrinsic value of 7600 CE would be –

Max [Spot – Strike, 0]

= [7645 – 7600, 0]

= 45

Since, we have sold this option for 201 the net pay off from the option would be

201 – 45

= 156

On the other hand we have bought two 7800 CE by paying a premium of 156. Clearly the 7800 CE would expire worthless hence, we lose the entire premium.

Net payoff would be –

156 – 156

= 0

So at 7645 the strategy neither makes money or loses any money for the trader, hence 7645 is treated as a breakeven point for this trade.

Scenario 4 – Market expires at 7700 (half way between the lower and higher strike price)

The 7600 CE would have an intrinsic value of 100, and the 7800 would have no intrinsic value.

On the 7600 CE we get to retain 101, as we would lose 100 from the premium received of 201 i.e 201 – 100 = 101.

We lose the entire premium of Rs.156 on the 7800 CE, hence the total payoff from the strategy would be

= 101 – 156

= – 55

Scenario 5 – Market expires at 7800 (at the higher strike price)

This is an interesting market expiry level, think about it –

  1. At 7800 the 7600 CE would have an intrinsic value of 200, and hence we have to let go of the entire premium received i.e 201
  2. At 7800, the 7800 CE would expire worthless hence we lose the entire premium paid for the 7800 CE i.e Rs.78 per lot, since we have 2 of these we lose Rs.156

So this is like a ‘double whammy’ point for the strategy!

The net pay off for the strategy is –

Premium Received for 7600 CE – Intrinsic value of 7600 CE – Premium Paid for 7800 CE

= 201 – 200 – 156

= -155

This also happens to be the maximum loss of this strategy.

Scenario 6 – Market expires at 7955 (higher strike i.e 7800 + Max loss)

I’ve deliberately selected this strike to showcase the fact that at 7955 the strategy breakeven!

But we dealt with a breakeven earlier, you may ask?

Well, this strategy has two breakeven points – one on the lower side (7645) and another one on the upper side i.e 7955.

At 7955 the net payoff from the strategy is –

Premium Received for 7600 CE – Intrinsic value of 7600 CE + (2* Intrinsic value of 7800 CE) – Premium Paid for 7800 CE

= 201 – 355 + (2*155) – 156

= 201 – 355 + 310 – 156

= 0

Scenario 7 – Market expires at 8100 (higher than the higher strike price, your expected target)

The 7600 CE will have an intrinsic value of 500, and the 7800 CE will have an intrinsic value of 300.

The net payoff would be –

Premium Received for 7600 CE – Intrinsic value of 7600 CE + (2* Intrinsic value of 7800 CE) – Premium Paid for 7800 CE

= 201 – 500 + (2*300) – 156

= 201 – 500 + 600 -156

= 145

Here are various other levels of expiry, and the eventual payoff from the strategy. Do note, as the market goes up, so does the profits, but when the market goes down, you still make some money, although limited.

4.3 – Strategy Generalization

Going by the above discussed scenarios we can make few generalizations –

  • Spread = Higher Strike – Lower Strike
  • Net Credit = Premium Received for lower strike – 2*Premium of higher strike
  • Max Loss = Spread – Net Credit
  • Max Loss occurs at = Higher Strike
  • The payoff when market goes down = Net Credit
  • Lower Breakeven = Lower Strike + Net Credit
  • Upper Breakeven = Higher Strike + Max Loss

Here is a graph that highlights all these important points –


Notice how the payoff remains flat even when the market goes down, the maximum loss at 7800, and the way the payoff takes off beyond 7955.

4.4 – Welcome back the Greeks

I suppose you are familiar with these graphs by now. The following graphs show the profitability of the strategy considering the time to expiry and therefore these graphs help the trader select the right strikes.


Before understanding the graphs above, note the following –

  1. Nifty spot is assumed to be at 8000
  2. Start of the series is defined as anytime during the first 15 days of the series
  3. End of the series is defined as anytime during the last 15 days of the series
  4. The Call Ratio Back Spread is optimized and the spread is created with 300 points difference

The thought here is that the market will move up by about 6.25% i.e from 8000 to 8500. So considering the move and the time to expiry, the graphs above suggest –

  1. Graph 1 (top left) and Graph 2 (top right) – You are at the start of the expiry series and you expect the move over the next 5 days (and 15 days in case of Graph 2), then a Call Ratio Spread with 7800 CE (ITM) and 8100 CE (OTM) is the most profitable wherein you would sell 7800 CE and buy 2 8100 CE. Do note – even though you would be right on the direction of movement, selecting other far OTM strikes call options tend to lose money
  2. Graph 3 (bottom left) and Graph 4 (bottom right) – You are at the start of the expiry series and you expect the move in 25 days (and expiry day in case of Graph 3), then a Call Ratio Spread with 7800 CE (ITM) and 8100 CE (OTM) is the most profitable wherein you would sell 7800 CE and buy 2 8100 CE.

You must be wondering that the selection of strikes is same irrespective of time to expiry. Well yes, in fact this is the point – Call ratio back spread works best when you sell slightly ITM option and buy slightly OTM option when there is ample time to expiry. In fact all other combinations lose money, especially the ones with far OTM options and especially when you expect the target to be achieved closer to the expiry.

Here are another bunch of charts; the only difference is that the move (i.e 6.25%) occurs during the 2nd half of the series –

  1. Graph 1 (top left) & Graph 2 (top right) – If you expect the move during the 2nd half of the series, and you expect the move to happen within a day (or within 5 days, graph 2) then the best strikes to opt are deep ITM and slightly ITM i.e 7600 (lower strike short) and 7900 (higher strike long). Do note, this is not the classic combo of an ITM + OTM spread, instead this is an ITM and ITM spread! In fact all other combinations don’t work.
  2. Graph 3 (bottom right) & Graph 4 (bottom left) – If you expect the move during the 2nd half of the series, and you expect the move to happen within 10 days (or on expiry day, graph 4) then the best strikes to opt are deep ITM and slightly ITM i.e 7600 (lower strike short) and 7900 (higher strike long). This is similar to what graph 1 and graph 2 suggest.

Again, the point to note here is besides getting the direction right, the strike selection is the key to the profitability of this strategy. One needs to be diligent enough to map the time to expiry to the right strike to make sure that the strategy works in your favor.

What about the effect of volatility on this strategy? Well, volatility plays a key role here, have a look at the image below –


There are three colored lines depicting the change of “net premium” aka the strategy payoff versus change in volatility. These lines help us understand the effect of increase in volatility on the strategy keeping time to expiry in perspective.

  1. Blue Line – This line suggests that an increase in volatility when there is ample time to expiry (30 days) is beneficial for the Call ratio back spread. As we can see the strategy payoff increases from -67 to +43 when the volatility increase from 15% to 30%. Clearly this means that when there is ample time to expiry, besides being right on the direction of stock/index you also need to have a view on volatility. For this reason, even though I’m bullish on the stock, I would be a bit hesitant to deploy this strategy at the start of the series if the volatility is on the higher side (say more than double of the usual volatility reading)
  2. Green line – This line suggests that an increase in volatility when there are about 15 days time to expiry is beneficial, although not as much as in the previous case. As we can see the strategy payoff increases from -77 to -47 when the volatility increase from 15% to 30%.
  3. Red line – This is an interesting, counter intuitive outcome. When there are very few days to expiry, increase in volatility has a negative impact on the strategy! Think about it, increase in volatility when there are few days to expiry enhances the possibility of the option to expiry OTM, hence the premium decreases. So, if you are bullish on a stock / index with few days to expiry, and you also expect the volatility to increase during this period then thread cautiously.

Key takeaways from this chapter

  1. The Call Ratio Backspread is best executed when your outlook on the stock/index is bullish
  2. The strategy requires you to sell 1 ITM CE and buy 2 OTM CE, and this is to be executed in the same ratio i.e for every 1 sold option, 2 options have to be purchased
  3. The strategy is usually executed for a ‘net Credit’
  4. The strategy makes limited money if the stock price goes down, and unlimited profit if the stock price goes up. The loss is pre defined
  5. There are two break even points – lower breakeven and upper breakeven points
  6. Spread = Higher Strike – Lower Strike
  7. Net Credit = Premium Received for lower strike – 2*Premium of higher strike
  8. Max Loss = Spread – Net Credit
  9. Max Loss occurs at = Higher Strike
  10. The payoff when market goes down = Net Credit
  11. Lower Breakeven = Lower Strike + Net Credit
  12. Upper Breakeven = Higher Strike + Max Loss
  13. Irrespective of the time to expiry opt for slightly ITM + Slightly OTM combination of strikes
  14. Increase in volatility is good for this strategy when there is more time to expiry, but when there is less time to expiry, increase in volatility is not really good for this strategy.


Download Call Ratio Back Spread Excel Sheet


  1. R P HANS says:

    Thanks sir for this wonderful strategy . I am having two points here to ask.
    1) Can we select the strike prices such that the spread and net credit are more or less same. So that the max. loss will be minimum. (Spread-net credit)? Is it practically possible to select premiums like that?
    2) the pay off you have mentioned is adjusted against the time decay. It is more of concern when time to expiry is more.
    Once again the topic is covered in a very simple way and easy to understand and grasp. .

    • Karthik Rangappa says:

      Spread and Credit cannot be same. Net Credit is always lesser than the spread.

      Time decay is not a good thing for this strategy, the only way it would works is when markets go higher.

  2. R P HANS says:

    OK, I was asking that the charts shown here and in P/L calculation for month end etc, whether time decay is considered or not? If not then our P/L will be different.

    • Karthik Rangappa says:

      Oh ok…time decay is considered since the chart depicts the payoff at expiry.

      • Harsha says:

        Hey karthik!!

        Thank you very much to you and zerodha for varsity content!! Best on internet I must say!!

        I can’t understand what graphs are conveying? i.e., target hits in 5, 10, 15, 25 and last day of expiry. Ofcourse they are showing the profits percentage but why they are above and below the x-axis. I’m totally confused. Please let me out of this confusion.

        • Karthik Rangappa says:

          Thanks, Harsh.
          Target hits in 5, 10, 15, 25 —- > these are the number of days in which the profit is supposed to hit.

  3. Vipul says:

    Sir, How much margin for selling an itm option overnight.. Also is it possible to do this intra day.. I mean every day in a month.. We don’t keep risk of overnight news shocks and also margin requirements? Please enlighten

  4. Ajay says:

    Hey Karthik,
    i just had a small doubt regarding the profitability graphs. There is a line that says “The following graphs show the profitability of the strategy:. So the graph for 7800 strike means- a call ratio back spread with a short 7800 strike Call and 2 long 8100 Calls? Just a little confused here

  5. Khyati Verdhan says:

    Hi kartik
    As I learn in option theory chapter, that today is Dec, then Dec. Is current month, Jan. Is mid month and Feb. Is far month. But in nifty we see good volumes in March, April,… Contracts. Is it possible to buy March, April,… Contracts when current month is Dec. ????

    • Karthik Rangappa says:

      Can you please post a screen shot?

      • Khyati Verdhan says:

        Why nifty has trade in April contract

        • Karthik Rangappa says:

          These are quarterly contracts, here is an extract from NSE –

          The Exchange shall introduce long term option contracts on NIFTY. The options cycle shall be as under.

          The 3 serial month contracts would continue to exist.
          The following 3 quarterly months of the cycle March / June / September / December would be available.
          After these, 5 following semi-annual months of the cycle June / December would be available, so that at any point in time there would be options contracts with atleast 3 year tenure available

  6. Sri krishna says:

    Sir please check the pic attached and suggest whether we can invest in this case or not. As per my calculations it was showing always profit… Is it true??

    • Karthik Rangappa says:

      There is no strategy that will always give you a profit 🙂

      My guess is you have forgotten to multiply the 520 CE by 2…remember you have to buy 2 call option for every 1 sold option!

      • m v srikrishna says:

        I have chosen 2 sell -3 buy strategy instead of 1 sell -2 call.

        • Karthik Rangappa says:

          It should be in the same ratio – 2 sell 4 buy.

          • m v srikrishna says:

            In this article itself it is mentioned as “4.2 – Strategy Notes
            In fact the call ratio back spread has to be executed in the 2:1 ratio meaning 2 options bought for every one option sold, or 3 options bought for every 2 option sold, so on and so forth.” And if this is typo error, whats wrong if we have strategy in 3:2.

          • Karthik Rangappa says:

            My bad, will make the necessary changes.

  7. Rahul Shah says:

    Karthik I think you forget to calculate IV for 2 call option in your excel sheet for G23 to G29 cell correct me if I am wrong!!!

  8. Dileep says:

    What happens if i implement the strategy at the starting of month and square off say after 10days. Will my P&L will be same as per payoff graph?

    • Karthik Rangappa says:

      The payoff is only upon expiry…if you happen to close the position earlier your P&L will be slightly different.

  9. Khyati Verdhan says:

    Hi kartik
    Can you please tell me what will be the value of nifty upon expiary in January

  10. Anoop says:

    What if option expires otm ,then sensex exercise charges will washout all gain.

  11. narsimha says:

    sir,good,what if we close the sold option (bcoz of margin pressure)&leave long calls&try.enlighten

    • Karthik Rangappa says:

      In that case the existing long position would be ‘naked’, which will come with its usual set of risk and reward characteristics.

  12. anoop says:

    i am saying if option expires as ITM,then sensex STT/tax service charges are too high which will wash out all gain.

    • Karthik Rangappa says:

      Not really. It really depends on how much ITM it is. For example if you have 7500CE and market expires at 7510, then yes your profits get washed off with these charges…but if the market is at 7520 or 7525 then you still take home quite a bit.

      • R P HANS says:

        could not get this.
        7510, 7520 why should make such a difference. In both cases it is ITM ?

        • Karthik Rangappa says:

          Assume you paid a premium of Rs.10 of 7500 CE. If the market exprires at 7510 then you will not make any money as the 10 points you make goes towards adjusting for STT and related charges. However if its 7520, then you have 10 points remaining after adjusting for transnational expenses.

  13. pawan kumar singh says:

    Long Strangle is not better than this strategy coz it gives profit in both direction?

    • R P HANS says:

      Long strangle also gives profit in both direction. It shall have very good movement in any direction then it is profitable.

    • Karthik Rangappa says:

      Well, long strangle/straddle are both direction independent. Whereas this one is biased towards a bullish outcome.

  14. narsimha says:

    sir,i think all these selling option stategies works well with stock option rather index clarify.whare can we look historical charts of nifty&commodities(10years)

  15. Ankit says:

    Hi ,

    first of all thanks for this great article..Can you please send the excel of Put Ratio Back Spread please..Humble request.
    Zerodha Client

  16. narsimha says:

    sir.where can we look historical charts of commodities nifty etc of last 10 years

  17. Ankit says:

    Dear Karthik, Thanks a lot for the chapter humble request for you to please make an excel of put ratio back spread as soon as you can..Sorry for being pushy but really require it at this time of the session and the fall as the protection trade…Thanks a lot email is [email protected] ..God bless

  18. S.K Verma says:


  19. narsimha says:

    ,thanks,smalldoubt,where can we look histirical price data in NSE SITE (option prices of last 1 month) sorry for silly question clarify

  20. narsimha says:

    sir,thanks.we are desperate to hear about BACK TESTING&EXPERT ADVISOR whan can we expect that module

  21. MAYUR says:


    cam we used put back spread and call back spread as combination

  22. SREE says:

    Sir how much money margin is requiersd i mean to say.. Only for 45 points credit is required or for entire all three options

  23. Deepak says:

    Here is the question , if i am out right bullish on index/stock and targets will be met with a day or 2, why call ratio back spread ? When option trader is implementing more than 2 legs option stratgey, its clear he is not fully sure of market movements.

    • Karthik Rangappa says:

      There is nothing like ‘fully sure’ in the market, hence risk averse traders depend upon strategies such as this.

  24. Rati Ranjan Sahoo says:

    Sir my Question is How to calculate stock strike price . please give me the simple example

    • Karthik Rangappa says:

      Why do you need to calculate strike price? NSE will do that for you based on their strike creation logic.

  25. amitpathak25 says:

    Hi Karthik, how do we calculate and plot profitability charts to deduce best strikes.

  26. Abhijit Mazumder says:

    Hi Karthik,
    Graphs are not appearing. Its been replaced by a placeholder. Could you please take a look?
    Thanks in advance,

  27. Prasheel says:

    What would be the effect it we change ratio to 2:1 to Some other Ratio??
    And Could basis of change ratio depend on??

    • Karthik Rangappa says:

      Well you are change it to any number but have the maintain the 2:1 ratio. The higher the number of lots, the higher is the degree of gains/loss.

  28. sabu says:

    Hi Karthik,
    For a interday trader, do you think its better to go with naked options or use any of the strategies from this module?
    Thank You

  29. Anil says:

    Hi Karthik,

    Can you please provide more information(or resources to study) on the effect of volatility and option greeks on the strategies discussed in this chapter. For example i didnt understand how you are able to generate the images shown in the section “4.4 – Welcome back the Greeks” of this chapter. So please tell me where can I find more info on these.


    • Karthik Rangappa says:

      All the graphs are generated based on B&S model. Once you build the model you can tweak a variables/against others to get any desired output/graphs.

      • Anil says:

        I understand that B&S model will take some parameters as input and compute the option greeks values(Please correct me if i am wrong). But in section “4.4 – Welcome back the Greeks” of this chapter, you have shown a graph between strike vs profit Loss %. Please tell me how you were able to plot this graph.

        Also please let me know if there are any tools to build the B&S model.


        • Karthik Rangappa says:

          Yup, these graphs were developed using the B&S model. Also, if i’m not wrong these were developed using ‘R’ software.

          • Anil says:

            I tried to google on how these graphs can be generated using B&S model, but i couldn’t find any helpful resource. Can you please give me any reference on how to use the B&S model to generate these graphs.

            Also i tried searching for the “R” software. As far as i understand it is a programming language. Is my understanding correct?

            If you are using “R” programming language, please provide the references for this as well.


          • Karthik Rangappa says:

            Yes, R is a statistical package. All about R here –

  30. Sameer says:

    Cannot visualise your graphs on the iPad. Where are these graphs available for us to make a decision.

  31. Sameer says:

    Which is the software/website wherein these graphs would be available for reference?

  32. Raj says:

    Mr. Karthik,

    “4.4 – Welcome back the Greeks”

    Assuming Nifty moves from 8000 to 8500, Graph-1 shows 7800 CE as the most profitable strike. But, As per our strategy we will be losing money as we have short 7800 CE.

    In that case what shall be the best strike to choose to get good profit from Call Ratio Back Spread strategy.

    Can you clarify.

    • Karthik Rangappa says:

      Sorry, I’m unable to get the context here. Can you kindly elaborate?

      • Raj says:

        In 4.2 Strategy Notes:

        You have chosen to sell one lot 7600 CE and buy 7800 CE, when we expect Nifty to move from 7743 to 8100.

        In 4.4:

        Nifty at 8000 and assuming it to hit 8500 the most profitable strike is 7800 CE as per the stats. But when we plot this strategy when Nifty is at 8000, we have to Sell one lot of 7800 CE and Buy 2 lots of 8100 CE.

        The graph shows 7800 CE (1 lots) as most profitable strike, which we have short.

        In that case 7800 CE will give us loss as it will react more than two lots of 8100 CE.

        I am slightly confused to understand.

        • Karthik Rangappa says:

          We need to consider time as well..and not really look at this at an individual strike level bur rather at a strategy level. So please look at the time to expiry and see which graph suits the situation.

          • Raj says:

            Considering i am at the first half of the month.
            As mentioned “7800 CE (ITM) and 8100 CE (OTM) is the most profitable wherein you would sell 7800 CE and buy 2 8100 CE”

            But the graph shows 7800 CE as the most profitable strike (which we have short)

          • Karthik Rangappa says:

            Raj – You will have to see it as a strategy as a whole, and not at individual strikes.

  33. 9SR says:

    Dear Karthik,
    If we have to implement multileg strategy, exactly how to do it on Z pi platform. Do we have to implement one by one. In such case, will not the platform identify them as separate trades? Can you please throw light one this.

  34. Royal says:

    Images are not available on this page

  35. kaushik says:

    2 questions
    1) if we buy call option if we hold it till expiry is there any extra charges like STT.
    2) if we short call option or put option can we squared off trade before expiry?

  36. Divjot Singh Gulati says:

    Hello sir,

    What if we buy a put option instead of selling a call option at that specific strike.

    Our overall expense would increase but our profitability would also increase if the market reverses.

    What other difference would it make???

    • Karthik Rangappa says:

      You should look at selling Call options (as an alternate to buying puts) when the premiums have shot up significantly. Naturally, buying PUTS would also be expensive at this stage.

  37. Praveen chavadi says:

    Sir I have 1 sell option and 2 buy options of call for yes bank stock. Do I get the profit / loss based upon premium for 1 lot shares or 3 lot shares..? Max loss here is 12 rs. Whether its 12 * 1 lot shares or 3 lot shares.

    • Karthik Rangappa says:

      If you have executed this as a strategy, then you will have to consider the P&L for the entire lot, which included 3 positions.

  38. ZD2412 says:


    “Welcome back the Greeks” Diagrams are not visible.


  39. Azeem says:

    How does it matter if target is hit in 5 days or 15 days… dont we have to wait till expiry to square off the trade anyways ?

    • Karthik Rangappa says:

      Not really, you can sq off the position whenever you want. Have explained in the comments earlier.

      • Azeem says:

        But if you square off 10 days before the expiry then premium wont be equal to intrinsic value… it will have time value also.. so profit and loss will be different wont it ?

        • Karthik Rangappa says:

          Yes, it would be. When you are trading before expiry, you are essentially trading the premium or the difference between your buy and sell price of the premium.

  40. Vijay says:

    Hi I see little mistake in the excel sheet, looks like column PP is not calculated twice so it is showing only 1 leg debit so the chart itself is not showing correctly. Can you correct it

  41. SUSHANT says:

    Hi Karthik/Faisal,

    You guys are awesome and you know it already.

    I have a query:

    I prepared 2 cases for March expiry at current levels.
    Case 1: standard Call-Ratio-Back-Spread
    Case 2: Instead of 2 lot I went long with 1 lot.

    What I observed is that, in case 2:
    Maximum loss decreased, breakeven span for loss reduced, profits increased. In fact everything seems positive.

    Please enlighten.

    not able to attach snap.

    Case 1:
    Underlying Nifty
    Spot Price 10094
    Lower Strike (LS), Sell, ITM 9900
    Higher Strike (HS), Buy, OTM 10200
    Credit (LS) 250
    Debit (HS) 2*61
    Net Credit 128

    Case 2:
    Underlying Nifty
    Spot Price 10094
    Lower Strike (LS), Sell, ITM 9900
    Higher Strike (HS), Buy, OTM 10200
    Credit (LS) 250
    Debit (HS) 61
    Net Credit 189

    • Karthik Rangappa says:

      Sushant, while case 1 is a standard ratio spread, what you have in case 2 i.e sell ITM Call and buy OTM Call is called a ‘Bear Call Spread’. Essentially this is a variant of bull call/Put spreads. Works best if you expect the stock/index to fall. I’d suggest you plot the payoff graph and visualize the P&L to understand this better.

  42. santosh patidar says:

    As per the chapter we have to maintain 2:1or ( 2n:n ).
    Are there strategies which has different ratios such as (m:n) where m&n can be any number ?

    • Karthik Rangappa says:

      No, as far as I know, most of the options strategies have a predefined ration within which you have to execute the trades.

  43. Vivek Anand says:

    Hi Karthik none of the images in section 4.4 is visible. Only Zerodha watermark can be seen. Can you please look into this?

  44. Rishab Khandelwal says:

    Hi Karthik,

    Thanks a lot for Varsity.

    I wanted to know that instead of waiting till expiry for this strategy to work, if I trade the options based on the premiums at any time before expiry to book profit, will the profit/loss graph remain the same or it may change based on other factors like volatility, delta etc which in turn will alter the premiums.


    • Karthik Rangappa says:

      The P&L will vary, Rishab and it largely depends on the option greeks.

      • Rishab Khandelwal says:


        Does that mean that even though my view is bullish and the stock/index does move upwards, I can still make a loss if other Greeks don’t work out in my favor ? (Before expiry)

        Also, all option strategies will be surely profitable only if my view of the stock/index remains correct till expiry of the contract ?

        • Karthik Rangappa says:

          Yes, there are instances where the stock moves in your direction but other factors drag the premiums lower. So you need to be completely aware of the greeks influences on the options.

          • Rishab Khandelwal says:


            One more thing. During the contract period before expiry, the spot value will keep changing which may change the moneyness of the options bought/sold. So, do we need to keep updating them accordingly or we should hold them based on the initial spot price ?

            I hope I am not irritating you too much with my questions!

          • Karthik Rangappa says:

            Rishab, its always a good idea to keep the sheet updated. Moneyness of the option is dynamic and has a great impact on option premiums. It is best to be aware of the current market situation.

  45. Rishab Khandelwal says:

    Okay Sir. Thanks.

  46. Mani says:

    Hello sir, I was randomly checking payoff structure for ashok leyland today sir,
    spot price = 145
    strike 142.5CE MAY = 4
    strike 140CE MAY = 5.95
    if I apply the above strategy then net cash flow will be debit of 2.05 (4 * 2 – 5.95)
    I double checked the option chain for premium values. Even for Maruti twice the premium for slightly ITM is higher than deep ITM option sir.

  47. Mani says:

    Hello Sir, is there any delta limit that has to be maintained while executing this strategy? net delta works out to be 0.2, is it okay or should I increase the spread to change the delta value?

    • Karthik Rangappa says:

      If you are looking at Delta neutral, then it should be in and around 0…so something like -0.1 to 0 to +0.1 is ok. 0.2 is slightly skewed towards long side.

  48. sumit says:

    Images in the section 4.4 are not visible. Please do the needful.

  49. Vipin Mohan says:

    The attached strike price graphs are not visible/empty. Please look into this

  50. Gurjeet says:

    What do you think about this practice trade.
    Wipro spot 282
    Sell 275 CE @ 13.65
    Buy 285 [email protected] 8.30
    As wipro will post result on july 20 so i am expecting directional move on any side instead of range bound. And although volatility is bit high but i am expecting volatility to increase due to event .i have already drawn p/l on excel so closing beyond 280-290 range level will be profitable.

  51. prasad sarwate says:


    shouldn’t the premium increase with increase in volatility even though there are still 5 days to that case the possibility of call options transitioning to ATM from OTM increase or you mean to say that irrespective of the strike theta simply supersedes the volatility impact and hence the premium decreases.pls clarify sir!!

    • Karthik Rangappa says:

      The three variable i.e premium, theta, and volatility act simultaneously. If there are more days to expiry, then with the increase in volatility, the premium increases. If there are less (fewer) days to expiry, then the impact of an increase in volatility has a lesser impact on the premium. What matters here is the decay in time i.e the theta. To understand their dynamics, peg 1 of the variables like I have pegged time in this explanation.

  52. Shyam says:

    Hi ,

    Considering you execute this strategy and and market rises. Here the OTM options make money . As ITM options were sold will we lose money faster here due to high delta value?

  53. Shyam says:

    In the current market scenario it looks like breakeven is at 11500 if we sell an 11200 ITM CE and buy 11400 OTM CE. Profit will be when nifty is at 11550. Loss will be when market is range bound betwen 11300 and 11500.

    Can we sell a ITM option and buy a ATM option instead of buying a OTM option?

    • Karthik Rangappa says:

      You can replace the OTM with ATM, this will increase the cost but reduce the breakeven and the overall profitability of the strategy. Please make sure you are comfortable with the risk and reward. Good luck.


    Hi Karthik,

    Can we exit from all positions (Buy and Sell options) without waiting for expiry of Option ?

    Thanks in advance

  55. siddharth says:

    dear sir,
    unable to see the pictures in
    ‘ welcome back the greeks ‘

  56. siddharth says:

    SIr ,
    can you as per your line below. to judge if volatility is on higher side ?? or know how much higher it is from general mean
    2. does volatility vary of each strike different or same as underlying ( how to know change in Volatility ) ??

    “I would be a bit hesitant to deploy this strategy at the start of the series if the volatility is on the higher side (say more than double of the usual volatility reading)”

    • Karthik Rangappa says:

      1) YOu can compare the current vol with historical vol to get a sense of where the volatility stands for now. This is a rough technique, but works
      2) Yes, it does

  57. Vishnuprasad Venukumar says:

    Whether one should wait till the expiry to workout the strategies or can we square off in between if the target is achieved.

  58. Nagesh says:

    Hi sir,

    Could you please confirm is it possible to use the SL and SLM option in kite for Call or Put options.

  59. Nithin says:

    In call ratio back spread strategy, is there any chance that the max loss may increase in any circumstances. I mean is it guarantee that the maximum loss will be Max Loss = Spread – Net Credit.
    Or it may fail if any adverse happens/ whatever changes in the greeks?
    Kindly clarify as i am eager to apply this strategy.
    Also i request you to add a window in kite for one click execution of Option strategy instead of putting seperate orders for both legs.


    There is some error in excel sheet provided. For higher strike PP ( premium paid ), it should be for 2 lots. Instead it was accounted only for one lot. When the price goes down intrinsic values goes down so it is 0 and its ok. At the same time the premium paid should also be doubled. Please correct. It would be useful for others.

  61. Ron Kalra says:

    Dear Karthik,
    All the figures/graphs under the topic ” 4.4 – Welcome back the Greeks ” are not visible. Can you please update the graphs.

    Thank you Sir.

  62. Vishal says:

    Hi Karthik,

    What is the benefit of implementing “Call Ratio Back Spread” when we get additional benefit of unlimited profit on downside as well by implementing “Long Straddle/Strangle”? Leaving the technicalities like this is preferred when movement in one direction is opined and the other is when it’s bidirectional. But i still don’t see the benefit of letting go the unlimited profit on downside as well by implementing this strategy.

    I can see the only benefit is net credit when this strategy is implemented but again margin needs to be maintained for shorting.

    • Karthik Rangappa says:

      Vishal, you implement this, when you are bullish, unlike long straddle/strangle where you are neutral about markets. The good part, as you said is the net credit on the lower side, in case you are wrong about the bullish outlook.

  63. Aasim says:

    Hi Karthik

    My question is net credit will happen only if ITM (1 selling) is higher combined both the OTM?

    1) For eg selling 1 lot of 10500 CE ITM 332.30*75=24922
    2) Buy 2 LOTS OF 10950 CE OTM 86*150=12900
    Hence net credit will be 24922-12900=12,022

    Am i right ?

  64. Rajneesh says:

    Dear Karthik,

    The last 3 graphs in this chapter is not visible. Kindly look into it.

    Thanks and Regards,

  65. Amit says:

    Hello sir, why you have not included chapter on, front ratio spread, i.e. buy less and sell more options. Is it not worthy or just because it is a strategy of unlimited risk(theoretically).???

  66. Shakti says:

    Hello sir,
    What if you are in a situation where the strategy turns out to be net debit instead of net credit.
    eg.- spot price – 10,800
    LS- (ITM)- 10,700 and premium= 296.30
    HS (OTM)10,900 and premium= 167.30. and also I want you know how calculate or know the optimized spread.
    Please help me in this.

  67. Shukla says:

    Hi Karthik, really great tutorials. Really the effort and explanation is appreciable.

    Some how I am not able to view graphs after section 4.4 – Welcome back the Greeks

  68. Gautam says:

    Call ratio back spread
    From 7600 to 7800 there will be lose always ??
    What would happen if we cant buy two lot from the lower strike premium received so should we increase the spread size or should we spend some extra amount to buy the spread which we want to buy??

    • Karthik Rangappa says:

      Gautam, the higher the spread the lower the profitability. So you really need to find a balance between the spread and profitability. Btw, why won’t be you be able to buy the lower strike? If liquidity is good, there shouldn’t be any problem, right?

      • gautam says:

        u didnt understand the ques
        lets say nifty 11600 ce 200 premium
        and nifty 11800 ce 105 so here u see 105*2 =210 i didnt receive the premium in this case so what should i do then

        • Karthik Rangappa says:

          Sorry, I’m still not able to get your query. Can you please elaborate? Thanks.

          • Gautam says:

            What should i do if i am not able to buy 2 lot with the premium i recived by selling a lower call option
            Suppose i receive 100rs as premium by selling
            And now i want to buy 2 lot which is 60rs per lot . Which will cost 120
            . What should be done then

          • Karthik Rangappa says:

            Ah, in that case, the credits (from selling the higher strike) don’t match the debit (required for buying options)…so you will have to fund the difference. There is no other way.

  69. Ram says:

    Hey Karthik,
    I didn’t understand why would we consider Volatility in the call ratio back spread when we are going to hold till expiry and as we are holding till expiry only the intrinsic value would get traded and not the Premiums?
    Please correct me:)

    • Karthik Rangappa says:

      The strategy is net long, which means you have to ensure you buy when the volatility is low because the premiums are on the lower side.

  70. Ram says:

    Thank you Karthik. 🙂
    You are amazing……….!!!!!!!!!!!

  71. Ram says:

    Hey Karthik,
    Suppose we are in the first part of the month and the target gets achieved in a day, so would we have to hold the trade till the expiry because to collect the premiums?
    And if yes then what if for some another reason after the target is achieved the market drops then what would happen?

  72. Ram says:

    So would I be able to pocket the premiums when I short the option?

  73. Ram says:

    Sorry Karthik I am not able to understand when the intrinsic value is traded and when the premiums are traded?
    Like if one could sell a option and pocket the premium and buy it back instantly what would get traded the premiums or the intrinsic value? 🙂

    • Karthik Rangappa says:

      Its the premium which always gets traded. Just that the value of the premium is derived from the intrinsic value of the option.

  74. Amol says:

    Hi Kartik,
    Suppose banknifty is trading at 30600. If I make two positions like sold CE 31000 and sold PE 29500 just one day before expiry. And on the expiry day if spot value remains in between these two strikes, will I be making money?

  75. Suraj says:

    Hello karthik,what is the meaning of the context “volatility is on the higher side ” please do clarify my doubt.

  76. Ram says:

    Hey Karthik,
    Normally what is the average IV on Nifty stocks?

  77. Ram says:

    Thank You My Superhero!!!

  78. S Agrawal says:

    Ref; call ratio back strategy:
    Pl check calculation for expiry at higher strike @7800 – double whammy point, loss should be RS 201+78×2 = 357. Pl do correction in chart and calculation. Thanks.

    • Karthik Rangappa says:

      For 7600CE, 201 is the premium received, intrinsic value is 200, so this actually results in a net gain of 1. You’ve sold 2 lots of 7800CE at 78, so thats 156 in loss. Total loss is 156-1 = 155.

  79. Himanshu Jain says:

    Am I the only one who can’t seem any images post Section 4.4 – Welcome back the Greeks?

  80. ayush tyagi says:


    I am sorry as i may have missed it but from where do we get the graphs involved in selecting the strike prices?

    • Karthik Rangappa says:

      Do you mean the option chain? It is available on Kite, click on the context menu available when you load a strike on the Kite’s Marketwatch.

  81. Aman Bhatia says:

    Hi Karthik , Just great learning
    I was working on the Nifty Bank and checking the strategy .
    For me to get a net Credit i actually required a very big variance
    Spot : 17477
    Premium for 18700 CE : 603.75
    Premium for 17300 CE : 1294.15
    Nett Credit : 88

    With such a big spread , can we actually make any money in this strategy
    For any lower spread we are not getting any nett credit

    Am i playing it wrong , or this strategy is best avoided for Bank Nifty or i am picking the wrong strikes

    Cheers Aman

    Underlying Index: BANKNIFTY 17477.00 As on Mar 23, 2020 12:34:25 IST
    LTP Strike Price
    1,419.95 17100
    1,354.80 17200
    1,294.15 17300
    1,234.95 17400
    1,163.00 17500
    1,110.65 17600
    1,056.05 17700
    1,004.05 17800
    956.65 17900
    895.25 18000
    845.05 18100
    802.2 18200
    751.05 18300
    718.15 18400
    686.3 18500
    655 18600
    603.75 18700
    578.55 18800
    551.3 18900
    521.45 19000
    490.85 19100

    • Karthik Rangappa says:

      The problem is not getting the credit, it is about getting protecting it 🙂

      If the market rebounds and starts making a comeback, you could be in trouble with this position.

  82. Aman Bhatia says:

    The problem is not getting the credit, it is about getting protecting it 🙂 .. I am sorry this is not clear to me

    I just want to know for this spread to work what is a favourable situation and which instrument is more suitable as Bank Nifty case which i tried , i could not use data to verify the hypothesis .

    • Karthik Rangappa says:

      The payoff graph explains this well. You make a profit of mkt moves in any direction. You lose money if the market stay within the range.

  83. Arjun says:

    Hello Karthik!

    How do we plot volatility, payoff and time to expiry graphs? Can you please help with some resource?


  84. Karthik Sisupal says:

    Ok I cant see the graphs in sections welcome back the greeks even after performing hard refresh.

  85. Allen says:

    Hello Karthik,

    Would appreciate if you could kindly answer the flwg queries :
    1. Does the ratio always have to be 2:1…. or can 3:1 could also be considered.?
    2. Is having a Net Credit (rather than zero or negative) at the start of the strategy the key to profits?
    3. As can be seen… the max loss occurs (at expiry) at the Long Strike Price (i.e 7800 ). Is there
    a way to keep this loss to a minimum or mitigate this loss (during these volatile times) by initiating
    a counter trade.?

    This is indeed otherwise ‘an interesting options strategy’ as indicated in the tutorial.
    Unlimited profits if the market rises… A limited profit when it falls…and a pre-defined loss when flat.

    • Karthik Rangappa says:

      1) Can be in the ratio of 2:1…so 4:2 or 6:3
      2) Not a key, but good if its that way
      3) Hmm, you’ll have to offset this with writing options within that strike, gets a little messy though

      Good luck!

  86. shree says:

    Sir ,

    How do we calculate the call-ratio-back-spread for a Stock underlaying . what detail has to be edited , is Option chain details available to download on nse or has to be typed manually on the excel sheet ?

    • Karthik Rangappa says:

      You just have to look at the premium and do the calculations accordingly. I think you can use the same excel sheet.

  87. Chandra says:

    Hi Mr. Karthik,
    In the above chapter, in graph 1 and graph 2 saying, if I expect the move in next 5 days, then I have to select 7800CE ITM and 8100 CE OTM for most profitable trade and also you mentioned selecting other far OTM strikes call options tend to lose money. On what basis you are telling this, It is showing in the graph that is ok. Can you explain me the deep subject how the greeks are acting and why we are selecting only the specific strikes for a profitable trade?
    I have the same doubt in the previous chapters as well with Bull call spread and bull put spread. If you can explain me with one case I can corelate with rest of them.
    Thank you

    • Karthik Rangappa says:

      Chandra, all greeks are explained in great detail in this module. The graphs are derived out of the B&S model. Which part is confusing you? If you can explicitly state that then maybe I can help.

  88. Chandra says:

    Hi Mr. Karthik,
    I understood the theory about the greeks. I appreciate your efforts as it is very easy to understand.
    I just want to know how I can get loss selecting far OTM strikes If I expect the move in 5 days? Far OTM strikes will have less delta and also vega. If the move is in the expected positive direction, delta will increase and and effect of theta will be less compared to near by strikes and also I may get to buy the strike at lesser price. I mean if I really expect the move in 5 days and square off my position. I am a novice trader with no practical knowledge. Please take sometime to explain me this. let me know if I miscalculated this spread.
    Thank you

    • Karthik Rangappa says:

      Chandra, yes, if you are expecting the price move in 5 days also assuming you are early in the series, then you are better off by buying an OTM option…but not far OTM. There are times when the price moves but may not translate to an increase in premium for far OTM. The reasons for this could be many – the speed at which the market moves, volatility, and of course theta. So stick to slightly OTM instead of far OTM.

  89. Chandra says:

    Got it.
    Thank you.

  90. Abdul says:

    Sir I am not able to see Welcome to Greeks all graph.
    zerodha written on every page.
    Kindly see to it Sir
    Thank U

  91. Premakumar K S says:

    Namaste sir,
    Under Back to Greeks heading, while discussing volatslity, one statement says “Blue line suggests that an increase in volatility when there is ample time to expiry (30 days) is beneficial for the Call ratio back spread”. Later in the para it is mentioned that “For this reason, even though I’m bullish on the stock, I would be a bit hesitant to deploy this strategy at the start of the series if the volatility is on the higher side (say more than double of the usual volatility reading)” . I am bit confused sir. Kindly clarify.
    Thanks and Regardss.

  92. Premakumar K S says:

    Ok Sir,

    Will check.


  93. Premakumar K S says:

    I could see two comments where this point is touched. What I understood from your clarification is that we should not DEPLOY this strategy when the volatality high (because premiums would be high). Instead deploy it when the volatality is low and take advantage of low premiums and high volatality later after deployment. Whether this is ok Sir. Regards.

  94. Premakumar K S says:

    Respected sir,

    Thanks a lot.

    I am not into Options trading till now. But slowly getting the touch and feel of the intricacies involved from Z Varsity. You have become my Guru Dhronacharya sir. I could learn right from scratch till this stage without spending even a single paise. No need to attend any Webinar or Workshop. That is the power of ZV. Kindly accept my PRANAAMS for your untiring effort in imparting us invaluable education about stock markets and also for answering all our doubts however Silly they may be. Warm regards sir.

    • Karthik Rangappa says:

      Hey, thanks so much for your kind words Premkumar. It is a privilege for us. Hope you continue to learn and grow 🙂

  95. Ashray says:


    Can we use these strategies if we do not want to wait till expiry. Can we square off prior to expiry and earn through increase/decrease in premium as the case may be and still attain the desired outcome as explained?

  96. Adesh K. says:

    Hello Zerodha Team,
    While reading welcome Greek Ratio
    I am not able to see Welcome to Greeks all graph.
    zerodha written on every page.

    While I am refreshing the page, so many times it could’n seen.
    Please reply as soon as possible, to solve problem.
    ADESH K.

  97. Adesh K. says:

    I restart my computer still I can’t able to see graph.

  98. Adesh K. says:

    Kartik ji
    I am trying both mobile and Laptop, its not show graphs.
    Sometime graph shows on mobile for a moment, and its not work properly.

  99. karthik says:

    Karthik, Graph is not coming in chrome and firefox.

  100. Karthik says:

    graph is coming when i download the PDF file. Cheers

  101. abhinash says:

    sir ,
    How to place multiple legs order in kite ?

  102. Shubham says:

    Hi Karthik,
    Thank you for preparing this material and making it available without any cost. I have a few doubts regarding this strategy. While trying this out, on most of the stock/index options the premiums for Slightly ITM and Slightly OTM options are pretty close. As a result, there is a Net Debit instead of Credit.
    1. Since, this leads to a Net Debit. Wouldn’t this result in losses when the underlying price goes down, though the position will be slightly hedged? And will return profits only when the price increases?
    2. Is it advisable to use this strategy in such a scenario? If No? What kind of strategies will be better?

    • Karthik Rangappa says:

      1) Yup, hence you need to time this a bit and initiate the position when the premiums are properly aligned for the desired payoff
      2) No. You can try other strategies like straddles/strangles.

  103. abhinash says:

    sir ,
    please reply.

  104. Varun Agrawal says:

    Can confirm. The images are broken. That’s how they look.

    Maybe you don’t see the issue because you are logged into WordPress. Try visiting this page in incognito.

    • Karthik Rangappa says:

      Strange. I just looked at the same chapter in incognito, can see all image. Did you do a hard refresh on the browser?

  105. Varun Agrawal says:

    Yes. I seemed to have found the issue.

    This is the source code of one of the images with the issue

    The issue is that for my current monitor resolution, it loads this image which doesn’t exist.

    but for you, it probably loads this image×576.png

    That’s why I and many other peoples see the broken link and you see the right image. It’s because of the different display resolutions. I think deleting and re-uploading images will probably fix it. If it doesn’t work, maybe you can ask someone from your development team to fix it.

  106. Varun Agrawal says:

    Again posting my last comment in a Pastebin (since WordPress removed part of the message).

  107. Anil Gupta says:

    all the graph are missing towards the end. selection of strikes

  108. Uday says:

    Hello Karthik

    I am bit confused with P/L graphs. For ex. when you say target hits in 5 days and option is bought in first half of the series. Why does it matter when target hits as options has to be square of only on expiry. And lets say target hits in 5 days but later underlying goes down. your square of anyway will happen on spot price of expiry? so how does it help me if target hits in 5 days or 10 days?
    Secondly, in P/L calculations; have you assumed that market steadily increased at the rate we intent to(6.25% in your calculation)? May be this answers my first question. 🙂


    • Karthik Rangappa says:

      Uday, when you trade options, you essentially trade the premiums vary and hence you get to trade the premium at whichever point you want. There is no need to wait for expiry. So, I’d suggest you think about it from this perspective.

  109. Uday says:

    I see… meaning when target hits, i do square of the options trade other way & cash in P&L as from change in premium.. Got it… thanks.

  110. Sunnan says:

    Hi Karthik !
    First of all a deep appreciation for writing such a beautiful content .
    I was about to implement this strategy for Sun pharma July expiry by selling 1 Sun Pharma 470 Ce(36.10) and Buying 2 Sun pharma 490 Call(2*8.25) with the net credit coming to be 19.6.After Calculation on the Excel Sheet what is provided above ,the loss is coming at higher strike only (490),Can I Consider my calculation to be correct?

  111. Sakshat says:

    Sell one ITM and buy two OTM options.

    However, I have observed that, the cost of buying two OTM options is more than the premium we receive by selling one ITM which makes is a debit spread.

    I have checked the prices for Index and Stock options.
    Eg: ITM premium is Rs.100, OTM premium is 70*2=Rs.140, gives a net debit of Rs 40

    Am I missing something?

    • Karthik Rangappa says:

      That’s possible. The only way to deal with this is by going to the next strike where the premium is lesser and hopefully, this results in a net credit.

  112. sakshat says:

    Thanks !

  113. Jithin says:

    Sir, Kindly update the graphs. The graphs aren’t visible.

  114. Sagar says:

    Hi Sir, Thanks for the easy-to-understand study material. I am very new to this options learning. So, please excuse if my question is very basic.

    How do you get this “time to expiry chart” for selecting right strikes?


    • Karthik Rangappa says:

      Sagar, you can check Sensibull for this. Else, you can plot it on Excel quite easily. I’ve explained the method to do so in the chapter itself.

  115. vijay says:

    Greek graphs are not visible in desktop version but they are visible in mobile version please rectify the problem.

  116. Roshan says:

    Hello sir,
    I have one doubt.I think the number of days taken to achieve the target does not really matter if we intend to hold the position (Call ratio back spread)till expiry.Am I right? If I am right then what do the bar graphs discussed in this chapter convey?Do they tell the profitability of this strategy when we intend to square off our position before expiry by just trading the premiums?

  117. Aditya says:

    Just trying to understand the volatility impact again.

    In the chapter you say with 30 days left, having a high volatility is beneficial, however u also say though you bullish you will be hesitant to deploy this at start of series if volatility is high. Didn’t get this.

    Are you trying to say that because there 30 days left, the chances of the premiums to move up reverse are high if there is high volatility . Greater swings possible ?

    If that is true than the time to expiry 5 days, shouldn’t it be beneficial ?

    If you can try and explain this chart and concept again probably with a example

  118. Sharan says:

    Section 4.4 on this page – “Welcome back to the Greeks”. Graphs are not visible.


  119. Sharan says:

    Even after Hard Refresh, graphs not visible on Chrome Browser or Edge Browser on Windows PC.
    They are visible on the mobile version (on safari or chrome browser on mobile phone) but not visible where full desktop version website opens (such as Ipad’s Safari or Chrome Browser.)
    P.S. – Graphs are also visible on Varsity Mobile App.
    Kindly Look into it Sir.


  120. Mandeep Gulati says:

    In the example you said spread that best works for this strategy is 300 points. Now this is based on the underlying being around 7800 spot value.

    What if we are dealing with stock thats lets say is 75 spot value. Can we do a proportionate adjustment to get to the two strike values.
    300 is ~ 4% of 7800, so is it ok to say that the difference between the strikes should be around that much?

    • Karthik Rangappa says:

      Yes, you can do that. Best if to evaluate based on the current price and market circumstance. Use the 4% and a generic guideline.

  121. Shamz says:

    Hello Karthik,

    Huge fan of your teaching method! I soo wish my MBA faculty would had explained us like this. Massive respect!

    Images after 4.4 (Welcome back to the Greeks) is not getting loaded. I tried using other browsers as well (Primary Chrome). Is there any pdf version which you have saved it for this same? I tried to connect with the main pdf saved at the start of the module but its with different example.

    • Karthik Rangappa says:

      Thanks for the kind words. Many folks have complained the same, but it seems to work perfectly to many others. Unless we can replicate the issue, it is hard to fix 🙁

  122. Jitu says:

    What if there will be net debit instead of net credit.
    Sun pharma spot today-510
    Premiums for OTM 520 CE-25 ,ITM 500 CE-34
    Net cost=34-2*25=-16

  123. Jitu says:

    Sir but whole P&L scenario will change

    • Karthik Rangappa says:

      Thats right. The expiry P&L represents the worst and best case, if you close before expiry, your outcome will be within these outcomes. I think you can use Sensibull to check the outcome.

  124. Jitu says:

    In the case of net debit,strategy goes completely wrong.
    Just like in above example of sun pharma,
    Expiry below 500 Loss-(34-2*25)=-16
    Expiry bw 500 to 556 also gives loss
    Expiry above 556 only will give profit.
    So the strategy will fail in case of net debit and as much as I hv observed there will be net debit in case of set up of this strategy.(That is selling 1 slightly ITM CE and buying 2 slightly OTM call)

    • Karthik Rangappa says:

      Jitu, you can try these strategies on Sensibull. They have a nice strategy builder using which you can visualize the expected P&L at and before expiry.

  125. Bhuvan Jain says:

    If we are holding this strategy upto expiry and we are expecting the 6.25% move anytime before the expiry. Thn even in 2nd series case, instead of deep ITM and slight ITM call, if we sell 1 slight ITM call and buy 2 slight OTM call, the strategy should work fine. ???
    I cannot shrug off this doubt as to why then deep ITM leg is required?

    • Karthik Rangappa says:

      It should work, there is no problem with that. Its just that deep ITM completely finances the purchase of two OTMs, else this can result in a cash outflow.

  126. Aashray Patel says:

    IMO, this strategy is not at all suitable for amateur users, it is not easy to play this as it seems. The at expiration diagram is very misleading. The Greeks are very complicated and in order to profit from this one needs perfect estimation of volatility and Timings.
    1. When one is deploying this strategy he/she is basically buying a volatility skew by selling slight ITM higher IV and buying 2 OTM with comparatively lower volatility then ITM strike. It might not always be the case so one has to make sure the skew works in the long volatility favor. This gives one an edge.
    2. Holding this trade to expiration is risky as Theta cost is on the higher side and also Vega reduces significantly. So one needs to scalp gamma in order to over come the cost of theta and make trade profitable. However, biggest challenge in gamma scalping is the changing gamma, because as underlying move lower gamma can become negative.
    3. As mentioned in point 1. This is a long volatility strategy hence vega is positive. But know that, underlying price and IV have inverse relationship. When underlying fall sharp IV will shoot up, when underlying rise IV will decline. If the underlying moves below the lower strike the vega becomes negative in the phase of potentially rising IV which will hurt the trade. If the underlying moves up and rises into positive vega turf there is always risk of IV declining.
    4. So, it remains for us to see if the volatility skew between the strike is enough to compensate for the potential vega move as underlying changes.

    It is advisable to trade this strategy only when you expect a comparatively smaller change in IV but a greater potential change in realized volatility, also when you have a good volatility skew between the strikes. This increases the chance of profits.

    • Karthik Rangappa says:

      Thats right. This strategy is long volatility and also long underlying. Gamma scalping is not only complicated but also expensive, you’d spend a ton on money just to maintain neutrality. One should not deploy this if the view is not bullish on the underlying.

  127. Aashray Patel says:

    in continuation to above comment.

    a scenario where IV is less but realized volatility(historical) is higher is EXTREMELY BULLISH environment. so if one is outrightly bullish one can use this strategy but again, beware of the Greeks…. !!

  128. Koushik says:

    As stock options are physically settled.
    What if i implement call ratio back spread and it went outrightly bullish ?
    All become In the money right?
    Should i take physical delivery ??

  129. koushik says:

    My question is if I let it expire IN THE MONEY, as the market is out rightly bullish
    how many legs are physically delivered ?
    Whether it is only lot or two lots of ATM which are physically delivered in CALL RATIO BACK SPREAD ?

  130. Sumit says:

    Hello sir,
    the graphs are not visible after the para 4.4 “welcome to the greeks” instead only ZERODHA is written in place of Graphs..

  131. Mihir says:

    The charts have kind of disappeared on this page. Bringing to your attention.

  132. Karthik Chowdary says:

    hiii sir … good afternoon
    sir can i use call ratio back spread in usd inr options
    please help me sir

  133. naveen kumar says:

    I have a doubt sir? what does it actually mean by collecting premium while writing options . like.., if today i write an option and i collect premium and if tomorrow i square off my position will i still retain that premium amount? or will it vary based on cnc and mis

    • Karthik Rangappa says:

      No, when you sell the option you collect premium. When you buy options, you pay premium. The difference is what you make when you sell and buy.

  134. Dhaval says:

    Today 28TH SEP if i use below strategy:
    SPOT: 11111.4
    SELL CALL – 11050 @ 282.9 X 1 LOT
    BUY CALL – 11200 @ 202.8 X 2 LOT.

  135. Amit Lalakiya says:

    Hello, Kartik

    First of all, thank you for providing the fantastic material in easy to understand language.
    I have read all the previous module they are excellent.
    Just 1 doubt regarding option strategies, in light of the new rule of SEBI to a compulsory delivery based settlement instead of a cash settlement,
    1) can I hold options till expiry to maximise profit?
    2) do I need to square off my position before expiry?
    3) What if I failed to square off my position?

    Please provide details about it.


    • Karthik Rangappa says:

      1) Yes, you can, but the margin requirements shoot up, you may want look into that
      2) Not required
      3) It will get settled based on the moneyness of the option

  136. Dhanraj says:

    Cannot see the charts/graphs in call ratio back spread strategy

  137. Rajan says:

    Why are the volatility charts not showing up?

  138. Rajan says:

    One additional point – How does the volatility play differently when comparing call ratio back spread and put ratio back spread. Is increase in volatility favorable in both these strategies? My knowledge tells me that high volatility is a friend when going about selling strategies as premium is already fairly high and converse is true for the buying strategies?


    • Karthik Rangappa says:

      Thats right, increase in vol benefits both these strategies on the long side, the other way round if you are shorting this.

  139. Kumar says:

    Hi Karthik, In a paper trading of the call ratio back spread, I bought Oct 12050 CE, 2 lots for Rs. 81, sold Oct 11800 CE for Rs. 194. Net credit Rs. 32. BE points are 11833, 12267. Today (Oct. 26th), Nifty ended at 11767. It is below the lower be. However, instead of profit, the loss is Rs. 1823. Please inform the reason for the loss despite breach of the lower BE.

    • Karthik Rangappa says:

      Kumar, the P&L is based on the expectation that the position is held to expiry. To see the range of P&L before the expiry, its best to check the graph on Sensibull.

  140. Atish Gandhi says:

    Sir, none of the images (graphs) from 4.4 Welcome back the Greeks are loading. Only a photo with “ZERODHA” written on it is being displayed. Tried in both in Chrome & Firefox. Also opened image in new tab : ; . But still not displaying.

  141. Sanjog says:

    Suppose I execute an option strategy on Monday for Thursday’s weekly expiry in Bank Nifty. Let’s say I am executing a bull call spread strategy where BnF is trading at 27534. I buy one ATM call and sell one OTM call. My max profit is 7k and max loss is 5.4k (as shown in Opstra). Breakeven is at 27717, meaning if BnF falls below 27717 I start making losses and my max loss is at 27500. Let’s say on Tuesday BnF closes below 27500 and I make an MTM loss of 5.4k. What will happen on Wednesday and on the expiry day that is Thursday if BnF keeps falling, Will I incur a loss of 5.4k for the next two days i.e Wednesday and Thursday or my max loss will be capped at 5.4k somehow?

  142. Sanjog says:

    But how? What will happen on the subsequent days?

  143. Sanjog says:

    In the above situation, I have already lost 5.4k on Tuesday which is supposed to be my maximum loss, I didn’t square off my position and the market is still falling. What will happen on Wednesday? Will I lose more money? If not then how?

    • Karthik Rangappa says:

      The loss will be equal to the max loss provided you hold all the legs to expiry. However, it could vary a few percentage points before during the series.

  144. Sagar says:

    Thanks Karthik.

    In Option strategies is always good to carry the trade till end , means what if i want to PUT SL , is there any kind of calculation to get our of trade with combined SL. just trying figure out how pro traders come out such trades with hitting SLs when they trade in big quantity.

  145. Sachin says:

    Thanks sir for this wonderful strategy..
    Post section 4.4 , Graph is not visible, could you please make it visible to understand clearly..

  146. Ayus Das says:

    The graph is not shown. Only Zerodha is written on it. Moreover, it will be very good if graphs for selecting strikes according to theta is providing in all the strategies.

  147. SRINIVASAN M says:

    Dear Karthick,

    I had read Strike Selection much time But I still in Confusion because of the graph can you please explain how to calculate the P/L.

  148. Sagar says:

    breaking higher Break even is somewhat harder then breaking lower break even… so can this also combined as limited profit bearish strategy.


    Dear Sir,
    The Excel Sheet provided by u have one mistake in HS Payoff Column formula, In HS Payoff Formula Premium paid is not multiplied by 2, I think as we are buying 2 lots we should double the premium paid.
    Please clarify sir,

  150. Ron says:

    Hi Karthik
    Sorry to bother you again. Can you please let me know which option strategy is good to hedge future contract. Let’s say I’m long Nifty future contract and would like to hedge this position with an options contract. Is it better to follow the simple rule of buying a put ( long put ) which I guess is expensive to hedge.
    I’m not asking for a particular strategy but you can please give me a general rule of thumb when hedging long future contracts. Like for example credit option strategy or debit ? call Backspread ? I just want to know what should I look for when I want to hedge futures contract.

    Many thanks

    • Karthik Rangappa says:

      When you hedge, you only need to look at hedging delta i.e. directional risk. The problem when you choose far month is that you are also paying for time to expiry. Hedge is better when you keep it simple – Short futures, long Call 🙂

  151. Srinivas says:

    Actually the graphs are not displayed in the analysis of the strikes.

  152. Paradox says:

    In a 30 day series. if my target is hit in first 5 days, am i supposed to square off?

  153. Rajesh says:

    Hi, all images in section 4.4 – Welcome back the Greeks is missing. Could we please get it?

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