bullishCollects credit

Call Ratio Spread

A call ratio spread buys one call and sells two calls at a higher strike, often for a net credit. If the stock stalls or rises modestly you win; the danger is a runaway rally, where the extra naked short call loses without limit.

When it makes sense

You're mildly bullish but think a big rally is unlikely
Skew is steep — the upper strikes are rich enough to finance the long call
Entered for a credit, you profit even if the stock falls

How it works

Buy one call near the money, sell two calls at a higher strike, same expiration. Max profit is the strike width plus the credit (or minus the debit), landed exactly at the short strike. Above it, the second short call kicks in and P/L falls one-for-one.

Risk & reward

Downside: keep the credit (or lose the small debit) — often riskless if opened for a credit. Upside: unlimited loss past the upper breakeven. This is a trade you manage, not one you forget: a gap through the short strike is the failure mode.

Worked example

Stock at $140. Buy the 30-day $145 call, sell two $150 calls, for a $0.20 credit ($20). Stock below $145: keep $20. Stock at $150: make $520. Stock at $160: lose $480 — and it gets worse from there.

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