Why do most of the traders do not practice the call/put ratio back spread strategy? 
1 Like
Primarily because you need to be really bullish and then correct about the underlying for this strategy to have its best effect
Also, because its an advanced strategy and requires a significant amount of time and experience to start executing right consistently. It is favorite with Hedge funds and professional traders. Some of the people I know only trade backspreads.
One major issue of the ratio backspread is managing the position on a rolling basis to reduce the possiblity that the underlying doesn’t move at all, if this happens your position goes negative.
Another is that call ratio spreads have a higher breakeven point than the naked short trade.Again you have to be really bullish to rationalize taking the higher breakeven compared to a naked call.
The more time you give yourself the wider the strikes you’ll need to put it on for a credit and therefore more margin/risk. So it requires a more active management approach, whereas the covered call can be allowed to expire/assigned. Shorter dated ratio backspreads seem to work better in terms of risk/reward. This also means you will have to be extremely bullish on something happening soon. 70-80% of the time things trade flat.
So if you are really sure about something, its totally cool to go with ration backspreads everytime. If not other strategies also have their rightful place. A different medicine for a different disease as they say.
1 Like