1. What it is
Call version: buy one lower call and sell two higher calls. Put version: buy one higher put and sell two lower puts.
2. Why use it
Sell more options than you buy to target a moderate move, accepting an exposed tail.
3. How the numbers work
View example
- Buy 1 × Call · Strike 100
- Sell 2 × Call · Strike 105
All option legs have the same expiration.
- Option premium received
- 1
- Expiration breakeven
- 111
- Maximum expiration profit
- 6
- Maximum expiration loss
- Theoretically unlimited
- Underlying at expiration 100 → Profit 1
- Underlying at expiration 110 → Profit 1
4. How it changes
Near the doubled short strike, gamma and vega can be negative and theta positive. Beyond it, a favorable initial direction can turn into harmful exposure.
5. What to watch for
The extra short call is uncovered. In the put version, losses grow during a deep decline and are bounded only by the underlying reaching zero.
A ratio spread is not a defined-risk vertical. Count the quantities as well as the number of different strikes.
Examples use illustrative entry prices and amounts per underlying unit, before costs. Contract amounts require the contract multiplier. Expiration payoffs assume the illustrated legs remain intact; earlier position values and exercise or assignment outcomes can differ.