Ratio Spread
Asymmetric options income strategy with defined and naked risk
Definition
A ratio spread is an options strategy where you buy options at one strike price and sell more options at a different strike price, creating an asymmetric position (e.g., buy 1 call, sell 2 calls). The additional short options generate extra premium income but create naked exposure above the highest strike. Ratio spreads can be bullish (call ratio spread) or bearish (put ratio spread). They are used when a trader expects moderate movement in one direction.
Example
You buy 1 SPX 5,000 call for $50 and sell 2 SPX 5,100 calls for $30 each. Net credit: $10. If SPX closes between 5,000 and 5,100 at expiration, you profit. If SPX rises above 5,100, the second short call creates uncapped upside risk. Maximum profit occurs when SPX closes exactly at 5,100.
Related Terms
Frequently Asked Question
What is a ratio spread?
A ratio spread buys options at one strike and sells more options at another, creating unequal quantities. The extra short options generate more premium but add risk if the asset moves too far in one direction.
APA Citation
Last updated:
· Source: VixShield Trading Glossary — From SPX Mastery by Russell Clark
⚠️ Not financial advice. This definition is educational content from the SPX Mastery book series by Russell Clark (VixShield). Past performance is not indicative of future results. Trading options involves substantial risk of loss and is not appropriate for all investors. Always paper trade before risking real capital.