Trading Options in Turbulent Markets: Master Uncertainty through Active Volatility Management, 2nd Edition

Chapter 19

Ratio Spreading: Trading Objectives Tailor Made

When working with options contract spreads, think of the spread as an asset. Treat the spread, however you build it, however many options contracts you buy or sell, and however you design the strategy, as a position in itself, as if it were two thousand shares of stock or twenty call contracts. Your spread will be more than the net income or cost to set up the position, more than the average strike price between the contracts you buy and the contracts you sell, and more than the likely volatility. This is especially true with a back spread or a ratio spread, as this investment strategy tends to be a lot more complex than a vertical spread or a calendar spread. For a back spread or ratio ...