← Strategy LabLesson 40 · 4:05
Call ratio spread
Summary
A call ratio spread suits a view that XYZ rises a little, to about $105. You pay $29 and can make up to $471 if XYZ ends at $105; a fall costs only the $29, but above $109.71 the loss has no limit. You break even at $100.29 and $109.71.
Key terms
- call ratio spread
- Buy one call and sell two calls at a higher strike: a cheap bet on a small rise with no limit on the loss if the stock jumps.
- one by two ratio
- uncovered call
- A sold call with no bought call or shares behind it, so its loss on a big rise has no limit.
- margin
- Money your broker holds against what a sold position could lose.
- net debit
- When a pair of trades sends cash out overall.
- break-even
- The stock price on the last day where you neither make nor lose money: strike plus premium for a call, strike minus premium for a put.
Check yourself
Answer each question to see why the right answer is right.
1. What does the lesson's call ratio spread cost to open?
2. XYZ jumps and ends at $115 on the last day. What is your result?
3. What is the most you can make, and where?
4. Where are the two break-evens?
5. XYZ jumps to $105 right away, with 30 days still left. Where are you?
Finished the video and the quiz? .