Volatility & advanced strategies
What is a Ratio Spread (e.g., Buy 1 Call, Sell 2 Calls) and what are its directional and volatility characteristics?
By Easy Money Scanner · Educational reference · Not investment advice
The short answer
A Ratio Spread (e.g., buying 1 call and selling 2 calls at a higher strike) reduces or eliminates upfront cost but introduces uncovered short exposure beyond the extra short option, creating unlimited risk potential in call ratio spreads.
How it works
The structure typically profits in a defined range around the short strikes but carries increasing directional risk and potential large losses if the underlying moves sharply beyond the short strike due to the net short option.
An example
Buy one 100 call and sell two 110 calls for a small net credit; profit is maximized near 110 at expiration, but losses increase without limit as the stock rises well above 110.
Risk & limitations
The uncovered extra short call creates undefined risk similar to naked option writing; this strategy requires margin approval and careful risk sizing, not simply the cost of the spread.
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.