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Put Option Strategies for Smarter Trading: How to Protect and Build Capital in Turbulent Markets by Michael C. Thomsett

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7. Puts in the Ratio Spread: Altering the Balance

A ratio spread refers to any strategy with two offsetting sides to a position, with one side weighted more heavily than the other. The best known of these is the ratio covered call, when more calls are sold than are covered. For example, if you own 300 shares of stock and sell four calls, this creates a 4-to-3 ratio spread. This can also be viewed as having three covered and one uncovered calls, but the ratio write does create advantages that reduce the uncovered call risk.

The premium received in the ratio write can be high enough to justify the ratio write. Because this adds downside protection, you can profit even if the short calls go in the money by either selling them or rolling one or ...

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