Call Ratio Spread Calculator

A call ratio spread buys one call and sells two calls at a higher strike on the same expiry, usually for a small credit or a small debit. It profits most if the stock finishes at the short strike, where the long call is worth the full width of the strikes and the short calls expire worthless. Above that the extra short call turns the position into an open-ended loss.

When it is used

Traders use it when they expect a stock to rise to a level and stop there, such as a prior high, and when implied volatility is high enough to make the two short calls worth selling. The undefined upside risk means brokers treat it like a naked call, and many traders add a further long call to cap it.

How it makes and loses money

A drift up to the short strike with falling implied volatility is the ideal. Time decay helps while the stock is between the strikes. A rally through the short strike hurts and keeps hurting, and a volatility spike during a rally hurts before the strike is reached. A fall costs only the debit, or earns the credit.

What to check in the grid

The top rows are the warning: the loss has no floor. The row at the short strike shows the tent peak at expiry, and the columns before it show how much of that peak is available early, which is usually less than half.