Ratio Spread Options Trading Strategy
Ratio spread options trading is one another multi-leg options trading strategy in which the trader usually writes more number of options than he buys for same underlying stock at different strike prices. Radio spread options trading is a limited profit unlimited risk strategy. This type of strategy is used when minimum volatility is expected in market.
In ratio spread options trading, the maximum profit is attained when the underlying stock is traded on the strike price at the options expiration time. The loss increases with the increase of decrease in price from the strike price. There are mainly two types of ratio spread options as Call Ratio Spread Options and Put Ratio Spread Options.
In Call ratio spread options, the trader buys call options at a lower striker price and sells more number of call options at higher strike price. If the on expiration the price is on or around or below the strike price the trader get profited, if price goes beyond the short options prices then the trader will suffer loss due to more number of short options. Put ratio spread options are similar to call options but are constructed using put options. They are traded with minimum debit or with credit. With put ratio spreads the loss is increased when price falls considerable and there is no uptrend loss. There is also backspread or reverse ratio spread strategies which are implemented when volatility is expected in stock prices.
In ratio spread options trading, the maximum profit is attained when the underlying stock is traded on the strike price at the options expiration time. The loss increases with the increase of decrease in price from the strike price. There are mainly two types of ratio spread options as Call Ratio Spread Options and Put Ratio Spread Options.
In Call ratio spread options, the trader buys call options at a lower striker price and sells more number of call options at higher strike price. If the on expiration the price is on or around or below the strike price the trader get profited, if price goes beyond the short options prices then the trader will suffer loss due to more number of short options. Put ratio spread options are similar to call options but are constructed using put options. They are traded with minimum debit or with credit. With put ratio spreads the loss is increased when price falls considerable and there is no uptrend loss. There is also backspread or reverse ratio spread strategies which are implemented when volatility is expected in stock prices.
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posted by Daniel Pipitone at
12:28 AM
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