Ratio Spreads involve selling more At The Money Options than are bought. They can be created with either calls or puts. A typical ratio is 2:1 but other ratios can be used to adjust the risk/reward profile of the position.

Ratio Spreads have limited profit and unlimited risk (either to the upside in the case of call ratios or downside for the put equivalent). They are considered non-directional strategies and profit the most when the price of the Underlying remains close to the Strike Price of the sold At The Money Options.

The inverse of a ratio spread is called a Back Spread and in this case, more Options are bought than are sold. These are directional and profit when the price of the Underlying moves significantly higher (for call backspreads) or lower (for put backspreads).

Contributed by: Ralph Windsor
Ratio Spreads have limited profit and unlimited risk (either to the upside in the case of call ratios or downside for the put equivalent). They are considered non-directional strategies and profit the most when the price of the Underlying remains close to the Strike Price of the sold At The Money Options.

The inverse of a ratio spread is called a Back Spread and in this case, more Options are bought than are sold. These are directional and profit when the price of the Underlying moves significantly higher (for call backspreads) or lower (for put backspreads).

## Related Directory Entries

## Featured Video View All

#### How & When to Trade Put Ratio Spreads

TastyTrade.com video on put ratio spreads.

## External Links

Ratio Spreadhttp://www.theoptionsguide.com/ratio-spread.aspx

Options Guide article on ratio spreads.

View Options Guide Strategy Finder in Options Market Glossary Directory

Ratio spreadshttp://blog.mdwoptions.com/options_for_rookies/ratio-spreads-part-i/

A series of articles about ratio spreads from Options For Rookies by Mark Wolfinger.

Short Ratio Call Spreadhttp://www.optionseducation.org/strategies_advanced_concepts/strategies/short_ratio_call_spread.html

OIC guide to short ratio call spreads.

View OIC Options Glossary in Options Market Glossary Directory

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