Calendar & diagonal spreads
What is a Ratio Calendar Spread and how does it modify traditional time-spread risk profiles?
By Easy Money Scanner · Educational reference · Not investment advice
The short answer
A Ratio Calendar Spread adjusts the standard 1:1 calendar by selling more near-term options than the long back-month options purchased, increasing premium collection but introducing naked short exposure on the extra contracts.
How it works
This ratio structure amplifies theta income potential but creates undefined risk on the uncovered short options if the underlying moves sharply, unlike the limited-risk profile of a standard 1:1 calendar.
An example
A trader sells two 30-day 100 calls and buys one 60-day 100 call, collecting more premium but assuming naked risk on the uncovered second short call.
Risk & limitations
The naked short exposure can produce losses well beyond the strategy's initial premium, similar to risks found in uncovered option writing, requiring careful margin and risk management.
Examples are hypothetical, not trade recommendations. US contract and regulatory references do not automatically apply in Canada. Rules, margin requirements and broker policies can change; confirm them with the relevant authority and your broker.