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+Chapter 11: Ratio Call Spreads 215 
+These two philosophies are not mutually exclusive. The strategist who uses ratio 
+spreads without regard for whether they are debit or credit spreads will generally 
+have a broader array of spreads to choose from and will also be able to assume a more 
+neutral posture on the stock. The spreader who insists on generating credits only will 
+be forced to establish spreads on which his return will be slightly smaller if the under­
+lying stock remains relatively unchanged. However, he will not have to worry about 
+downside defensive action, since he has no risk to the downside. The third philoso­
+phy, the "delta spread," is described after the next section, in which the uses of ratios 
+other than 2: 1 are described. 
+ALTERING THE RATIO 
+Under either of the two philosophies discussed above, the strategist may find that a 
+3:1 ratio or a 3:2 ratio better suits his purposes than the 2:1 ratio. It is not common 
+to write in a ratio of greater than 4: 1 because of the large increase in upside risk at 
+such high ratios. The higher the ratio that is used, the higher will be the credits of 
+the spread. This means that the profits to the downside will be greater if the stock 
+collapses. The lower the ratio that is used, the higher the upside break-even point will 
+be, thereby reducing upside risk. 
+Example: If the same prices are used as in the initial example in this chapter, it will 
+be possible to demonstrate these facts using three different ratios (Table 11-3): 
+XYZ common, 44; 
+XYZ April 40 call, 5; and 
+XYZ April 45 call, 3. 
+TABLE 11-3. 
+Comparison of three ratios. 
+Price of spread 
+(downside risk) 
+Upside break-even 
+Downside break-even 
+Maximum profit 
+3:2 Ratio: 
+Buy 2 April 40's 
+Sell 3 April 45's 
+1 debit 
+54 
+401/2 
+9 
+2:1 Ratio: 3:1 Ratio: 
+By 1 April 40 Buy 1 April 40 
+Sell 2 April 45's Sell 3 April 45's 
+1 credit 4 credit 
+51 49½ 
+None None 
+6 9