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training_data/curated/text/890bb643e124ffb25e87cd8819aa54fcc67661bd41a1151cea2875aefd96268d.txt

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+Ratio Vertical Spreads
+Definition : An option strategy consisting of more short options than long
+options having the same expiration month. Typically, the trader is short calls
+(or puts) in one series of options and long a fewer number of calls (or puts)
+in another series in the same expiration month on the same option class.
+A ratio vertical spread, like a backspread, involves options struck at two
+different prices—one long strike and one short. That means that it is a
+volatility strategy that may be long or short gamma or vega depending on
+where the underlying price is at the time. The ratio vertical spread is
+effectively the opposite of a backspread. Let’s study a ratio vertical using
+the same options as those used in the backspread example.
+With the stock at $71 and one month until March expiration:
+In this case, we are buying one ITM call and selling two OTM calls. The
+relationship of the stock price to the strike price is not relevant to whether
+this spread is considered a ratio vertical spread. Certainly, all these options
+could be ITM or OTM at the time the trade is initiated. It is also not
+important whether the trade is done for a debit or a credit. If the stock price,
+time to expiration, volatility, or number of contracts in the ratio were
+different, this could just as easily been a credit ratio vertical.
+Exhibit 16.4 illustrates the payout of this strategy if both legs of the 1:2
+contract are still open at expiration.