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 paid:
Potential Profit
  • When the stock price/index level is between the lower and upper break-even points
  • Limited to strike price/level difference minus the net premium paid
Maximum Loss
  • When the stock price/index level is below the lower break-even point, limited to the net premium paid
  • When the stock price/index level is above the upper break-even point, unlimited & equals to the stock price/level minus the upper break-even point
Time Value Impact Positive
Break-even
  • The lower break-even point equals to the lower strike price/level plus the net premium paid
  • The upper break-even point equals to the higher strike price/level plus the strike price/level difference minus the net premium paid
Remarks Compared with a Short Straddle, a Ratio Call Spread (with net premium paid) has unlimited loss on the upside but limited loss on the downside.
Example
  Net Position +1 Jun 180 Call -2 Jun 200 Call

Component Buy 1 ABC Jun $180 Call, pay $35 and sell 2 ABC Jun $200 Call each at $16, totally receive $32
Net Premium Pay $35-$32=$3
Break-even
  • Lower: $180+$3=$183
  • Upper: $200+$20-$3=$217
Profit when Stock price is between $183 & $217
Potential Profit ($200-$180) - $3 = $17 when the stock price = $200
Potential Loss
  • When the stock price is below $197, limited to $3
  • When the stock price is above $217, stock price - $217
Time Value Impact Positive

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