Options Strategy Guide
Call Ratio Spread
Profit from a modest rise — careful if the stock flies too high.
Advanced
Mildly Bullish
Defined downside, uncapped upside loss if stock rallies too strongly
The Simple Version
Plain English — no jargon
You think a stock will go up a little — but not too much. You buy one call and sell two calls at a higher strike. The two you sell fund the one you bought. If the stock goes up a little, great — you profit. If it explodes upward past your sold strikes, you start losing money on the extra short call.
How It Works — Step by Step
- 1 Buy 1 call at a lower strike
- 2 Sell 2 calls at a higher strike
- 3 Often structured for zero or small net credit
- 4 Maximum profit at the short strike at expiration
- 5 Loss develops above the upper strikes due to the extra short call
Real Example
AMZN
Illustrative example — not a recommendation
Stock Price
$190.0
Strike Price
$195.0
Premium Collected
$0.3/share
Days to Expiration
30d
Max Profit
$530
Breakeven
$194.7
Annualized Return
0%
When to Use It — and When Not To
✓ Use when
- You expect a modest, capped rally — not a blowout move
- IV is high and you want to sell extra premium
- You can manage the naked short call risk
✗ Avoid when
- You expect a very large rally — the extra short call creates unlimited risk
- You don't have margin approval for naked calls
- The stock is highly volatile
Greeks & Mechanics (for the experienced trader)
Delta
Slightly positive at initiation — turns negative if stock rips higher.
Theta
Positive — the two short calls decay faster than the one long call.
Vega
Negative — net short vega due to the extra short call.
Gamma
Positive below short strikes, negative above.
Key Risks
- Unlimited upside loss if stock rallies far above the short strikes
- Requires margin and advanced options approval
- Difficult to manage if stock moves sharply higher
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