The Option Trader’s Work Book: A Problem-Solving Approach, Second Edition

6. Advanced Ratio Trades

Ratio trades are incredibly versatile. They can be structured to capitalize on time decay, rising or falling volatility, or a directional bias that can range from strongly bullish to strongly bearish. Unlike most trade structures, ratios can be precisely tuned to fit almost any environment. These goals are often accomplished with structures that span multiple expirations or several strikes. Not surprisingly, virtually every option trading concept comes into play when structuring and managing these trades. But with complexity comes opportunity, and ratios, more than any other trade structure, allow investors to precisely reflect their view of the market using options. It is possible, for example, to create a ratio structure ...