Ratio spreads
Call ratio spread
Buy one at-the-money call, sell two further out-of-the-money calls.
Index stays in a rangeOpens for a creditComfortable managing riskLoss uncapped
How it works
The two sold calls more than pay for the bought one, so the position is normally opened for a credit. It profits over a wide band and does best when the index drifts up to around the sold strike.
What it costs you when you are wrong
Unbounded above the sold strike, and the danger sits exactly where the trade looks like it is working. You are net short one call, so a strong rally turns the best-case zone into the worst-case one very quickly.
The position
- 1Buy the call at the money
- 2Sell 2 lots of the call 4 strikes out of the money
- Enter
- 4 trading days before expiry
- Exit
- hold to expiry
- Legs
- 2
Test it yourself
This runs against real historical market data. Nothing is uploaded, nothing is stored, and the result is not a prediction — it is what this rule would have done, on that index, in that year, with the costs shown.