Strategy Overview
High RiskAdvancedBullishBearish
A ratio spread involves buying one option and selling two options at a different strike. It profits from moderate directional moves but has unlimited risk beyond the short strikes.
Max Profit
Strike difference + net credit (at short strike)
Max Loss
Unlimited beyond short strike
Breakeven
Varies based on strikes and premiums
Probability
~55% win rate
hist. est.
This strategy has unlimited downside risk. Use strict risk management.
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Example Setup Calculator
$
Credit Received
$100
Max Profit
$600
Max Loss
Unlimited
Breakeven
$99.00 / $106.00
Strategy Components
BUY ATM CALL
Buy 1 ATM option
SELL OTM CALL
Sell 2 OTM options
When to Use
- You expect a moderate directional move
- You want to reduce cost or create a credit
- You are comfortable with undefined risk
- You have a clear price target
Best Market Conditions
- Moderate directional bias
- High IV for better credit
- Clear target level
Best Practices
- Place short strikes at your price target
- Monitor closely - undefined risk beyond shorts
- Have a clear stop-loss plan
- Consider converting to butterfly if tested
Ready to Trade?
Review Ratio Spread and practice it in paper trading with the school workflow.
Paper Trading