Those who expect the underlying currency to make a large move higher from here onwards, then this strategy can be established as follows,Option Strategy: Call Ratio Back Spread:Purchase more number of calls and sell fewer calls of a lower strike usually in a ratio of 2:1.The lower strike short calls finances the purchase of the greater number of long calls and the position is entered for no cost or a net credit.As shown in the figure, for 2 OTM calls can be bought at 528.71 Canadian dollars which would be financed by short call. But use near month near month contract for shorting side.The USD has to make substantial move on the upside for the gains in long calls to overcome the losses in the short calls as the maximum loss is at the long strike.Using mid month contract on long side gives underlying currency a longer time so as to make a substantial up move.In this trade, the maximum loss is to the extent of Long Strike – Short Strike – credit received.But the maximum gain on the other hand would be unlimited on the upside and limited on the downside to the net credit received.
The material has been provided by InstaForex Company – www.instaforex.com