Source: Call Ratio Backspread, pg. 143-146, Fontanills, G., trade options online

Usage: You feel Yahoo implied volatility will increase and move away from the position at 170. You are more bullish and expect profits to occur if Yahoo moves up. Your Yahoo downside losses are limited. In the example, the position is taken after a pull back from a rally causing the downside position to be slightly unprofitable but the upside has strong profit potential. The trade in the book occurred on 12/3/98 but the web site does not have historical data for that date. The example trade starts at 12/4/98 with the prices discussed in the book.

Profits: Unlimited if Yahoo rallies past the upside break-even point of 190 at expiration. Limited on the downside and only slightly unprofitable in the example ($75 ) past the downside break-even point at 160. The position is more likely entered after Yahoo moves down and stagnates into low volatility with breakouts about to occur. Yahoo strongly rallied and the trade is very profitable.

Losses: Limited and maximum value occurs if the market remains below 160 at expiration ($75). The loss is less than a long straddle but downside profit is sacrificed.