Similar to a long call spread, the call ratio spread is implemented when a trader expects modest upside from the underlying security.

However, the stakes are higher in this variation, as the trader sells more calls than are purchased -- most often using a ratio of 2: As a result, this tactic requires that the trader have a high degree of confidence regarding the stock's expected trajectory on the charts.

You expect the uptrend to continue over the near term before stalling out at this familiar resistance level. To take advantage, you initiate a call ratio spread by buying to open one at-the-money strike call for the ask price of 1.

Call Ratio Spread

Subtracting your credit of 0. This would return the maximum gain on your purchased call, while both of the sold calls could be left to expire worthless. Your potential profit here is limited to the difference between the two strike prices, less the initial net debit -- or [ 35 - 30 - 0.

If the stock should rise above the strike price of your sold calls, you could be facing steep losses. Only one of the calls you sold is hedged by a purchased call, so your other sold call is naked -- exposing you to theoretically unlimited risk if the shares should rally.

Your upper breakeven on this naked call is equivalent to the sold call strike plus the maximum profit of 4.

If the stock should rise above that upper threshold, your losses will add up quickly. Since the call ratio spread involves more sold calls than purchased calls, it's best if implied volatility remains relatively stable.

Rising implied volatility will call ratio spread option the value of your purchased call, but it also ups the premiums of your sold calls. Depending upon your strike selection and the ratio of sold calls to purchased calls, you may be able to enter call ratio spread option call ratio spread for a net credit.

If the stock remains at or below the purchased call strike through expiration, you'll keep the initial credit as your only gain.

Using a 1x2 options ratio spread | Futures Magazine

Meanwhile, additional profits will begin to accrue immediately on a rise above the purchased strike, with the maximum gain accion del precio forex to the difference between the two strike prices, plus the net credit. Should the shares rise above the sold call strike, losses will begin to add up if the stock tops the upper breakeven -- which is equal to the sold strike plus the maximum profit.

Due to the naked call s involved in this strategy, a margin account is required to play the call ratio spread.

Hughes Optioneering

In other words, this strategy is best reserved for experienced option players. MY ACCOUNT CONTACT US SEARCH.

ABOUT US NEWS AND ANALYSIS TRADING SERVICES OPTIONS EDUCATION BROKER CENTER 30 FREE TRADES. Call Ratio Spread Outlook: Moderately bullish -- and confident Similar to a long call spread, the call ratio spread is implemented when a trader expects modest upside from the underlying security.

Let's take a closer look at the call ratio spread by considering a hypothetical. Volatility Impact Since the call ratio spread involves more sold calls than purchased calls, it's best if implied volatility remains relatively stable.

Call Ratio Spread by eqogypacuc.web.fc2.com

Other Considerations Depending upon your strike selection and the ratio of sold calls to purchased calls, you may be able to enter the call ratio spread for a net credit. About Us Trading Services Contact Us Advertise with Us Sitemap Privacy Policy Additional Legal Notice.

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