Ratio Spread — Asymmetric Risk Profile
Buy 1 option + sell 2 (or more) at a different strike. Creates a non-symmetric payoff that profits in a specific range.
Ratio spread = buy 1 option + sell 2+ at a different strike. The ratio creates a non-symmetric payoff — max profit at the short strike, with capped or unlimited risk beyond.
Advanced strategy — only deploy after understanding all simpler structures. The asymmetric profile means small errors in entry can produce large losses.
Worked NIFTY 1:2 ratio call spread
NIFTY at 22,000. You're moderately bullish for a 1-1.5% move with little risk above 22,300.
Buy 1 lot 22,000 CE at ₹100 + Sell 2 lots 22,200 CE at ₹40 each. Net debit = 100 - 80 = ₹20 × 25 = ₹500 per lot.
Max profit (NIFTY at 22,200 expiry) = (22,200 - 22,000) × 25 - ₹500 = ₹4,500 per lot.
Above 22,200: each ₹1 NIFTY rise hurts you (you're net short 1 contract above that level).
Breakeven on the upside: 22,200 + ₹4,500 / 25 = 22,380. Beyond 22,380, unlimited loss.
When ratio spreads work
Strong target view. You expect a specific level — exactly where you want max profit.
Low IV regime. Sold legs subsidise the long leg most effectively when premium is collectible.
Defined-range moves. When you're confident the underlying won't break past the short strikes by too much.
Why ratio spreads are risky
Above the short strike, you're net short. Unlimited loss if the underlying breaks past significantly. A 1:2 ratio means losses grow at 1x of the move above your breakeven — like being short half the lot count.
Gamma also peaks at the short strike, so as the underlying approaches it, your Delta swings dramatically. Position management requires active monitoring.
Common misreads
- Treating ratio spreads as 'free spreads' because of low/zero net cost. The risk above the short strike is real and substantial.
- Holding through expiry with the short strike threatened. The Gamma at the short strike on expiry day can produce catastrophic single-day losses.
- Not setting stops. Without a stop, ratio spreads can turn an account-busting bad day into account-busting permanence.
Key takeaways
- Buy 1 + sell 2+ at different strike. Asymmetric payoff.
- Max profit at the short strike.
- Unlimited (or large) loss beyond breakeven.
- Advanced strategy — manage actively.
Ratio spread — handle with care
Why use a ratio spread instead of a bull call spread?
Ratio spread targets a specific level rather than a direction. If your view is 'NIFTY hits 22,200 then stalls,' ratio works better. If your view is 'NIFTY rallies above 22,200,' bull call spread is safer.
What ratio is most common?
1:2 (one long, two short) is the most common retail ratio. 1:3 is more aggressive — more credit but more risk. 1:1.5 with fractional lots isn't possible on NSE due to integer-lot rule.
Can I do ratio put spreads?
Yes — mirror image. Buy 1 higher-strike put + sell 2 lower-strike puts. Profits if the underlying drifts down to the short strike but punishes if it crashes through.
What's the margin requirement?
Span + exposure: ₹50,000-1,00,000 per ratio depending on strikes. The naked-short-call leg drives the margin up considerably.