Stock Options Trading with a Ratio Spread

By Stock Research Pro • November 24th, 2009

A ratio spread is an options trading strategy under which the trader buys a number of options and sells a greater number of options of the same underlying stock and expiration date in an effort to capture profit through a small uptick in the price of the underlying stock. For example, the trader might buy a call option with a strike price of $35 and write two call options with a strike price of $40.

The ratio spread is a strategy that offers limited profit with unlimited risk; if the stock price rises above the strike price of the written options, the position loses value. Therefore, the strategy is only undertaken when the trader believes the stock will see limited near-term volatility.


The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.

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