A ratio spread is an options strategy where more contracts are sold than bought, meaning the position is intentionally unbalanced. Instead of matching one long option to one short option, the trader sells extra premium to hopefully create a net credit or offset (eliminate) the cost of buying the long call, accepting defined or managed risk in exchange for higher probability outcomes and time-decay working in their favor. Ratio spreads are not directional bets as much as they are range and behavior trades, where how the stock moves matters more than simply picking the right direction.
A ratio call spread works by buying a close to the money long call (for example, the 55 call for $0.50) and selling two higher-strike calls (such as the 60 calls at $1.00 each), creating a net credit (about $1.50) that benefits from time decay and controlled upside as the stock moves from 49 toward 62, with risk and reward changing across low, medium, and high delta zones—making it my favorite strategy because it has the possibility to pay you upfront, teaches respect for risk, and forces disciplined trade management rather than blind direction.
Ratio spreads carry real risk if the stock moves aggressively beyond the short strikes, so position sizing and active management are essential. To see how price movement and delta changes affect outcomes in real time. Try the ratio spread calculator below and walk through the trade one dollar at a time!!!
| Stock Price | Long $55 Call | Two $60 Calls | Net P/L |
|---|---|---|---|
| $49 | $0.00 | $0.00 | $1.50 |
| $50 | $0.00 | $0.00 | $1.50 |
| $51 | $0.00 | $0.00 | $1.50 |
| $52 | $0.00 | $0.00 | $1.50 |
| $53 | $0.00 | $0.00 | $1.50 |
| $54 | $0.00 | $0.00 | $1.50 |
| $55 | $0.00 | $0.00 | $1.50 |
| $56 | $0.50 | $0.00 | $2.00 |
| $57 | $1.00 | $0.00 | $2.50 |
| $58 | $1.50 | $0.00 | $3.00 |
| $59 | $2.00 | $0.00 | $3.50 |
| $60 | $2.50 | $0.00 | $4.00 |
| $61 | $3.00 | $-1.00 | $3.50 |
| $62 | $3.50 | $-2.00 | $3.00 |
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The information on this website is provided for educational and informational purposes only and does not constitute financial, investment, or trading advice. Options trading involves substantial risk and is not suitable for all investors. Past performance is not indicative of future results.