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Call Front Spread - An Option Trading Strategy

Today on this page, we shall learn about call front spread options strategy. Call front spread strategy has more short option contracts having the same strike price than the long option contract.

A call front spread strategy is neutral to a bullish market strategy. This strategy is generally used for a net Credit gain. Thus, it does not have any downside potential risk.

In this strategy, traders buy long options contracts after selling more than one short OTM option contracts. These spreads are used for the small Credit gain.

How to set up a call front spread ratio?

To set up a call front ratio spread, traders buy a call option contract at an ATM or OTM. Additionally, traders sell two further OTM call option contracts at a higher Strike to gain the net credit.

What is the maximum profit of front call ratios spread?

The width of the vertical spread plus the initial credit received will be the maximum profit of this strategy. In case the price doesn't go as you expected, you can still keep this profit.

In other words, the maximum profit is:

The distance between a long strike & strong short strike + the credit received initially.

One thing you must remember in this strategy is to gain the maximum profit; Your stock must close exactly at the short strike's price at the time of expiry.

Let us understand this strategy with an example:

Suppose you are neutral to bullish on ABC stock, and you believe that the price will have a slight change. The current price of ABC stock is ₹ 107, and the trader wants to enter call front spread, so he will buy a contract having a strike price of ₹110 with 2 months expiry by paying ₹5 as a premium. On the other hand, sells two option contracts at a strike price of ₹115 and receives ₹3 as a premium per contract. (Total ₹6 or ₹600 for 2 contracts or 200 shares).

To buy one contract of 100 shares, you paid ₹5 per share (₹500 for 100 shares), and by selling two contracts at ₹ 3 each, you gained ₹6 or ₹600 for 200 shares. This transaction gave you a net credit of ₹100.

No matter where the price moves, traders can keep this hundred Rupees as a profit.

Suppose the price closes at ₹115; you will have a net profit of rupees 5 on the long spread plus the initial credit of ₹100, which will total up to ₹600 maximum profit.

If the strategy is not working in your favor, you can roll the entire spread to some later expiration date.


So, we have seen that when there is no or low volatility in the underlying asset price, you can implement the front call spread option strategy and make some money. In case you have any questions and you need to clear them, kindly reach us at 8447445815 / 9909978783

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