Chapter 06 · Section 6.1

Ratio Call Spread

You know that ratio spreads get their name from the fact that you buy/sell the options in ratios of 1:2 or 1:3.

What is the ratio used in the spread shown on your left?

• a) Long one low exercise, Short two high exercise.
  Yes. Looking at the amount of premium alone, it may appear that there are more long calls than short. However, the long call is at a lower exercise price - it's premium is much more expensive. Continue
  b) Long two low exercise, Short one high exercise.

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