Community Forex Questions
What are the different types of ratio spreads and how do they differ?
Ratio spreads are a type of options trading strategy that involves buying and selling options with different strike prices and different ratios. There are two main types of ratio spreads: the call ratio spread and the put ratio spread.
A call ratio spread involves buying a certain number of call options at a lower strike price and selling a greater number of call options at a higher strike price. This strategy is typically used when the trader expects the underlying asset to rise in price.
A put ratio spread, on the other hand, involves buying a certain number of put options at a higher strike price and selling a greater number of put options at a lower strike price. This strategy is typically used when the trader expects the underlying asset to fall in price.
The key difference between the two types of ratio spreads is the direction of the trader's expectation for the underlying asset's price movement. Call ratio spreads are bullish strategies, while put ratio spreads are bearish strategies.
A call ratio spread involves buying a certain number of call options at a lower strike price and selling a greater number of call options at a higher strike price. This strategy is typically used when the trader expects the underlying asset to rise in price.
A put ratio spread, on the other hand, involves buying a certain number of put options at a higher strike price and selling a greater number of put options at a lower strike price. This strategy is typically used when the trader expects the underlying asset to fall in price.
The key difference between the two types of ratio spreads is the direction of the trader's expectation for the underlying asset's price movement. Call ratio spreads are bullish strategies, while put ratio spreads are bearish strategies.
Ratio spreads are options strategies involving the purchase and sale of differing numbers of calls or puts with the same expiration but different strike prices. The main types include:
Call Ratio Spread – Involves buying one call and selling multiple higher-strike calls. It profits from moderate bullish moves but risks losses if the price surges beyond the short strikes.
Put Ratio Spread – Involves buying one put and selling multiple lower-strike puts. It benefits from moderate bearish moves but faces unlimited risk if the underlying asset crashes.
Back Ratio Spread – Uses more long options than short (e.g., buying two calls and selling one higher-strike call). It profits from sharp price moves in one direction.
Key Differences:
Directionality: Call spreads are bullish, put spreads are bearish.
Risk/Reward: Standard ratio spreads cap gains but have uncapped losses if the market moves sharply, while back ratio spreads have higher profit potential in extreme moves.
Cost: Ratio spreads are often credit strategies, whereas back ratio spreads usually require a debit.
These spreads allow traders to capitalise on volatility and directional bias with varying risk exposures.
Call Ratio Spread – Involves buying one call and selling multiple higher-strike calls. It profits from moderate bullish moves but risks losses if the price surges beyond the short strikes.
Put Ratio Spread – Involves buying one put and selling multiple lower-strike puts. It benefits from moderate bearish moves but faces unlimited risk if the underlying asset crashes.
Back Ratio Spread – Uses more long options than short (e.g., buying two calls and selling one higher-strike call). It profits from sharp price moves in one direction.
Key Differences:
Directionality: Call spreads are bullish, put spreads are bearish.
Risk/Reward: Standard ratio spreads cap gains but have uncapped losses if the market moves sharply, while back ratio spreads have higher profit potential in extreme moves.
Cost: Ratio spreads are often credit strategies, whereas back ratio spreads usually require a debit.
These spreads allow traders to capitalise on volatility and directional bias with varying risk exposures.
Ponjuseme1982
Jun 24, 2025 12:07
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Apr 14, 2023 06:10