One call bought, two sold: cheaper than a bull spread, with a higher peak. This lesson shows where the risk hides, and why the trade wants a slow rise, not a fast one.
After this lesson you can
- Break a ratio spread into a bull spread plus a naked call, and find its peak and breakevens
- Explain why a slow rise to the short strike pays best and a fast rally hurts most
- Compare the version that costs $41 with the one that pays you $37, and what the credit costs you
- Repair a ratio spread when the stock runs, by buying back a call or turning it into a butterfly
- Avoid the five mistakes, starting with forgetting that the naked call is there
Chapters
- 0:00One call bought, two sold
- 1:29A bull spread plus a naked call
- 2:38What it pays at expiration
- 3:58Next to lesson eight's ratio write
- 5:06Why a fast rise hurts
- 6:25The version that pays you
- 7:51Margin on the extra call
- 8:59Repairing it when Acme runs
- 10:19The put version
- 11:45Five mistakes
- 12:46The whole lesson on one screen