Options Strategies
Ratio Call Spread
Strategies Ratio Call Spread
Component Buy 1 call with lower strike price/level and sell 2 call with higher strike price/level
1. Result in net premium received
2. Result in net premium paid
When there is net premium received:
Potential Profit
  • When the stock price/index level is below the break-even point
  • Limited to strike price/level difference plus the net premium received
Maximum Loss
  • When the stock price/index level is above the break-even point
  • Unlimited, equals to stock price/index level minus break-even point
Time Value Impact Positive
Break-even
  • Only one break-even point exists
  • Equal to higher strike price/level plus the strike price/level difference plus the net premium received
Remarks Compared with a Short Straddle, a Ratio Call Spread (with net premium received) has unlimited loss on the upside but limited profit on the downside.
Example
  Net Position +1 Jun 180 Call -2 Jun 200 Call

Component Buy 1 ABC Jun $180 Call, pay $30 and sell 2 ABC Jun $200 Call each at $20, totally receive $40
Net Premium Receive $40-$30=$10
Break-even $200+$20+$10=$230
Profit when Stock price is below $230
Potential Profit ($200-$180)+$10=$30 when the stock price = $200
Potential Loss Stock price - $230
Time Value Impact Positive

Back