Call Ratio Spread Strategy
Buy 1 ATM call, sell 2 OTM calls. Profit from moderate moves up with unlimited upside risk.
What is a Call Ratio Spread?
A Call Ratio Spread involves buying 1 call and selling 2 higher-strike calls (1:2 ratio). Often traded for even money or small credit. Profits from moderate bullish moves but has unlimited risk if stock rallies too far. Advanced strategy.
When to Use a Call Ratio Spread
Use when moderately bullish with specific price target. Best in high IV. Advanced strategy requiring active management.
Key Formulas
- Max Profit
- (Short strike - Long strike ± Net credit/debit) × 100
- Max Loss
- Unlimited (above short strike)
- Breakeven
- Short strike + (Max profit / 100)
Example Trade
Buy 1 AAPL $200 Call, Sell 2 $210 Calls for $0.50 credit. Max profit $1050 at $210. Unlimited loss above.
Common Mistakes to Avoid
- Ignoring unlimited upside risk
- No stop loss on the naked short
- Holding through earnings
- Poor strike selection
Related Strategies
Frequently Asked Questions
What is a Call Ratio Spread?
A Call Ratio Spread involves buying 1 call and selling 2 higher-strike calls (1:2 ratio). Often traded for even money or small credit. Profits from moderate bullish moves but has unlimited risk if stock rallies too far. Advanced strategy.
When should I use a Call Ratio Spread?
Use when moderately bullish with specific price target. Best in high IV. Advanced strategy requiring active management.
What is the maximum profit and loss for a Call Ratio Spread?
Max profit: (Short strike - Long strike ± Net credit/debit) × 100. Max loss: Unlimited (above short strike).
What is the breakeven price for a Call Ratio Spread?
Breakeven: Short strike + (Max profit / 100). Example trade: Buy 1 AAPL $200 Call, Sell 2 $210 Calls for $0.50 credit. Max profit $1050 at $210. Unlimited loss above.
What are common mistakes when trading a Call Ratio Spread?
Common mistakes include: Ignoring unlimited upside risk; No stop loss on the naked short; Holding through earnings; Poor strike selection.
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