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Trading Options Greeks: How Time, Volatility, and Other Pricing Factors Drive Profits, 2nd Edition by Dan Passarelli

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CHAPTER 16

Ratio Spreads and Complex Spreads

The purpose of spreading is to reduce risk. Buying one contract and selling another can reduce some or all of a trade’s risks, as measured by the greeks, compared with simply holding an outright option. But creative traders have the ability to exercise great control over their greeks risk. They can practically eliminate risk in some greeks, while retaining risks in just the desired greeks. To do so, traders may have to use more complex, and less conventional spreads. These spreads often involve buying or selling options in quantities other than one-to-one ratios.

Ratio Spreads

The simplest versions of these strategies used by retail traders, institutional traders, proprietary traders, and others are ...

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