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+Chapter 11: Ratio Call Spreads 217 
+It is a fairly simple matter to determine the correct ratio to use in the delta 
+spread: Merely divide the delta of the purchased call by the delta of the written call. 
+In the example, this implies that the neutral ratio is .80 divided by .50, or 1.6:1. 
+Obviously, one cannot sell 1.6 calls, so it is common practice to express that ratio as 
+16:10. Thus, the neutral spread would consist of buying 10 April 40's and selling 16 
+April 45's. This is the same as an 8:5 ratio. Notice that this calculation does not 
+include anything about debits or credits involved in the spread. In this example, an 
+8:5 ratio would involve a small debit of one point (5 April 40's cost 25 points and 8 
+April 45's bring in 24 points). Generally, reasonably selected delta spreads involve 
+small debits. 
+Certain selection criteria can be offered to help the spreader eliminate some of 
+the myriad possibilities of delta spreads on a day-to-day basis. First, one does not 
+want the ratio of the spread to be too large. An absolute limit, such as 4:1, can be 
+placed on all spread candidates. Also, if one eliminates any options selling for less 
+than ½ point as candidates for the short side of the spread, the higher ratios will be 
+eliminated. Second, one does not want the ratio to be too small. If the delta-neutral 
+ratio is less than 1.2:1 (6:5), the spread should probably be rejected. Finally, if one is 
+concerned with downside risk, he might want to limit the total debit outlay. This 
+might be done with a simple parameter, such as not paying a debit of more than 1 
+point per long option. Thus, in a spread involving 10 long calls, the total debit must 
+be 10 points or less. These screens are easily applied, especially with the aid of a com­
+puter analysis. One merely uses the deltas to determine the neutral ratio. Then, if it 
+is too small or too large, or if it requires the outlay of too large a debit, the spread is 
+rejected from consideration. If not, it is a potential candidate for investment. 
+FOLLOW-UP ACTION 
+Depending on the initial credit or debit of the spread, it may not be necessary to take 
+any downside defensive action at all. If the initial debit was large, the writer may roll 
+down the written calls as in a ratio write. 
+Example: An investor has established the ratio write by buying an XYZ July 40 call 
+and selling two July 60 calls with the stock near 60. He might have done this because 
+the July 40 was selling at parity. If the underlying stock declines, this spreader could 
+roll down to the 50's and then to the 45's, in the same manner as he would with a ratio 
+write. On the other hand, if the spread was initially set up with contiguous striking 
+prices, the lower strike being just below the higher strike, no rolling-down action 
+would be necessary.