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I watched a video about going long volatility within a portfolio via a call backspread. I previously looked into this via the "straddle" which is independent of the direction of volatility, however it does have a high probability of losing money in calm times.

The call backspread only seem to pay-off during up moves and not down moves. Given that this is true one could buy both a put backspread and a call backspread.

Is it correct that the backspread is directionally dependent when it comes to profiting from volatility?

What is the difference between a straddle and buying one call backspread and one put backspread?

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Your question isn't specific so it's hard to know exactly what you are comparing. Along with the strategy, you need to indicate whether it is long or short and what the strikes are so there's no confusion.

I watched a video about gong long volatility within a portfolio via a call backspread. I previously looked into this via the "straddle" which is independent of the direction of volatility, however it does have a high probability of losing money in calm times.

Prior to expiration, all option positions are affected by change in implied volatility. Increased IV increases option premium and vice versa. So a straddle is price and IV dependent. They may be cumulative or they may operate in opposition.

The call backspread only seem to pay-off during up moves and not down moves. Given that this is true one could buy both a put and a call backspread.

This is not necessarily true. If the backspread was established for a credit then it could be profitable if price remained the same or dropped. And again, there's the IV component.

What is the difference between a straddle and buying one call and one put back spread?

Assuming that both positions are anchored at the same central strike, a long straddle has a V shaped P&L graph whereas a double backspread (short the same straddle and long two strangles) has a W shaped P&L graph.

On an expiration basis, a long straddle's break even is the strike price plus and minus the debit cost.

The double backspread is more complex. It loses money in both directions until the underlying reaches a long strike and additional move in that direction then begins the recovery. The break even price will be the central strike plus (the difference in strikes minus the debit cost or plus the credit received). A charting program would make this a lot clearer.

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  • How would the IV competent help the value of a call backspread being far OTM? Shouldt it be worthless?
    – user123124
    Commented Jun 21, 2020 at 18:01
  • You have the advantage of knowing what the expiration, strike prices and premiums are. Since you did not specify them, I have no idea what you are referring to. If both options are worthless, change in IV has no effect. If they have life, it does. Secondly, if you're looking at worthless OTM backspreads, how would you expect them be effective in "gong long volatility within a portfolio"? Commented Jun 21, 2020 at 19:32
  • well if you buy a backspread it could move far OTM if it is say a call and market goes down. And so you only profit from upward vol.
    – user123124
    Commented Jun 21, 2020 at 19:39
  • I could just as well buy a thousand XYZ calls that cost one cent each in the hope that a miracle occurs and they make me a mega gazillionairre because Google bought the XYZ company for 100 times its current price. Now, getting back to reality, what's your point, that worthless backspreads aren't affected by volatility? If that's it, then you're right and this conversation is a waste of time. – Commented Jun 21, 2020 at 20:00

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