Ratio spread
Definition · Level 4 · Naked options
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A spread that buys one option and sells more than one further out, often two. The long option pays for part of the shorts, but the extra short option is naked, so the risk is large.
Example
Buy one 100 call, sell two 105 calls for a 0.40 credit.
Where Tradecraft teaches it
Level 4 · Naked options, in the lesson “Ratio spreads: buy one, sell two”: A trade that often costs little to open, with one naked leg hidden inside it.
Related terms
- Call Ratio SpreadBuy one call and sell two higher-strike calls.
- Put Ratio SpreadBuy one put and sell two lower-strike puts.
- Blow-upLosing all or most of an account in a single event, usually from oversized short-vol or leveraged positions.
- Borrow cost in option pricesIn a hard-to-borrow stock, short sellers pay the fee through the options: puts trade expensive and calls cheap compared with parity at normal…
- Calendar Spread – CreditBuy the near-term option and sell the longer-term one at the same strike.
- Delta hedgingTrading the underlying (or futures) to offset a position’s delta, so small moves barely change the profit and loss; it leaves gamma, theta and vega.