Chapter 06 · Section 6.1

The Ratio Call Spread

  1. 1Ratio Call Spread
  2. 2Change of the profit/loss profile
  3. 3Put on a ratio call spread
  4. 4Mechanics of a Ratio Call Spread
  5. 5Potential Losses
  6. 6Implied Volatility
  7. 7Time Decay
  8. 8Breakeven Point

In the section on volatile market positions, you learned how to combine low and high exercise calls or puts to create a backspreads. These positions profited when the price of the underlying instrument made a substantial move in either direction. As their name would suggest, ratio call spreads are the reverse of the call ratio backspread. Instead of profiting from price moves, ratio call spreads will realize a profit when the price of the underlying remains stable.

The following screens will look at the construction of this spread and its characteristics.