Trading Ratio Spreads

A ratio spread is a neutral options strategy in which an investor holds an unequal number of long and short options, usually with more short positions than long ones. The most common configuration is a 2:1 ratio, indicating that there are twice as many short options as long. While it resembles other spread strategies that involve both long and short positions of the same type (either puts or calls), the primary distinction lies in the unequal ratio of the two. Below are the ratio spread strategies available for trading on Webull, along with the required options levels for each:

Front Ratio Call Spread

A slightly bullish strategy that involves purchasing a call and selling two calls at the same strike price. This approach aims to benefit from little upward movement of the underlying security. Level 4 approval is required for this strategy.

• Max Gain: Achieved when the underlying security is priced at the short call strike price, calculated as the width of the spread plus the credit received. If opened as a debit, then it would be calculated by subtracting the debit paid from the width of the spreads.
• Max Loss: Unlimited
• Breakeven: If a credit is received, then it would be the short call strike price plus width of spread plus credit received. If opened as a debit, then the lower breakeven can be calculated by adding the debit paid to the long call strike price. The upper breakeven can be calculated by adding the width of the spread to the short call strike price and then subtracting the debit paid.

Front Ratio Put Spread

A slightly bearish strategy that involves purchasing a long put and selling two puts at the same strike price. This approach aims to benefit from a slight decline in the underlying security. Level 4 approval is required for this strategy.

• Max Gain: Achieved when the underlying security is priced at the short put strike price, calculated as the width of the spread plus the credit received. If opened as a debit, it is calculated by subtracting the debit paid from the width of the spread.
• Max Loss: If a credit is received, calculated as the short put strike price subtracted by the width of the spread and the credit received. If opened as a debit, subtract the width of the spread from the short put strike price and add the debit paid.
• Breakeven: If a credit is received, calculated by subtracting the width of the spread and credit received from the short put strike price. If opened as a debit, the lower breakeven can be calculated by subtracting the width of the spread from the short put strike price and adding the debit paid. The upper breakeven can be calculated by subtracting the debit paid from the long put strike price.

Back Ratio Call Spread

A bullish strategy that involves buying two calls and selling one call. The strategy is designed to have unlimited gain potential while having a defined risk amount. Level 3 approval is required for this strategy.

• Max Gain: Unlimited
• Max Loss: Occurs at the long strike price, calculated by subtracting the credit received from the width of the spread. If opened as a debit, calculated by adding the debit to the width of the spread.
• Breakeven: If opened as a credit, the lower breakeven point can be calculated by adding the credit to the short call strike price. The upper breakeven point can be calculated by adding the width of the spread to the long call strike price and then subtracting the credit received. If opened as a debit, calculated by adding the width of the spread and the debit to the long call strike price.

Back Ratio Put Spread

A bearish strategy that involves buying two puts and selling one put. The strategy is designed to profit from a significant decline of the underlying security while limiting exposure to losses if the price does not decrease as anticipated. Level 3 approval is required for this strategy.

• Max Gain: If opened as a credit, calculated by adding the credit received to the long put strike price and subtracting the width of the spread. If opened as a debit, calculated by subtracting the debit and the width of the spread from the long put strike price.
• Max Loss: If opened as a credit, calculated by subtracting the credit received from the width of the spread. If opened as a debit, calculated by adding the debit to the width of the spread.
• Breakeven: If opened as a credit, the lower breakeven is calculated by subtracting the width of the spread from the long put strike price and then adding the credit received. The upper breakeven is calculated by subtracting the credit from the short put strike price. If opened as a debit, calculated by subtracting the width of the spread and the debit paid from the long put strike price.

Option trading entails significant risk and is not appropriate for all investors. Option investors can rapidly lose the entire value of their investment in a short period of time and incur permanent loss by expiration date. You need to complete an options trading application and get approval on eligible accounts. Please read the Characteristics and Risks of Standardized Options and Option Spread Risk Disclosure before trading options.