Ratio Spread

Ratio Spread is an options strategy in which an investor simultaneously holds an unequal number of long and short positions. A commonly used ratio is two short options for every option purchased.

Ratio Spread

Ratio Spread is an options strategy in which an investor simultaneously holds an unequal number of long and short positions. A commonly used ratio is two short options for every option purchased.

 


Application of Ratio Spread

This strategy is typically used when the trader believes either:  the implied volatility of the options will decline; or that the underlying market of the option(s) will move in his favor.

The trader will use call options in this strategy if he believes the underlying market will move steadily higher, and put options if he believes the market will move steadily lower.


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