Ratio Call Spread
The Ratio Call Spread is the opposite of a Call Ratio Backspread in that we’re net
short options. This means we’re exposed to uncapped risk and can only make a lim-
ited reward. As such, this is an undesirable strategy, and you’d be better off trading
one of the long butterflies.
Increasing volatility is harmful to this strategy because of our exposure to
uncapped risk. The best thing that can happen is that the stock doesnt move at all.
The Ratio Call Spread involves buying and selling different numbers of the same
expiration calls. Typically we sell and buy calls in a ratio of 2:1 or 3:2, so we are
always a net seller. This gives us the uncapped risk potential. It also reduces the net
cost of doing the deal such that we create a net credit.
P/L Profile
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