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+Chapter 13: Reverse Spreads 
+Buy 2 July 45 calls at 1 each 
+Sell 1 July 40 call at 4 
+Net 
+2 debit 
+4 credit 
+2 credit 
+233 
+These spreads are generally established for credits. In fact, if the spread cannot 
+be initiated at a credit, it is usually not attractive. If the underlying stock drops in 
+price and is below 40 at July expiration, all the calls will expire worthless and the 
+strategist will make a profit equal to his initial credit. The maximum downside poten­
+tial of the reverse ratio spread is equal to the initial credit received. On the other 
+hand, if the stock rallies substantially, the potential upside profits are unlimited, since 
+the spreader owns more calls than he is short. Simplistically, the investor is bullish 
+and is buying out-of the-money calls but is simultaneously hedging himself by selling 
+another call. He can profit if the stock rises in price, as he thought it would, but he 
+also profits if the stock collapses and all the calls expire worthless. 
+This strategy has limited risk. With most spreads, the maximum loss is attained 
+at expiration at the striking price of the purchased call. This is a true statement for 
+backspreads. 
+Example: IfXYZ is at exactly 45 at July expiration, the July 45 calls will expire worth­
+less for a loss of $200 and the July 40 call will have to be bought back for 5 points, a 
+$100 loss on that call. The total loss would thus be $300, and this is the most that can 
+be lost in this example. If the underlying stock should rally dramatically, this strategy 
+has unlimited profit potential, since there are two long calls for each short one. In 
+fact, one can always compute the upside break-even point at expiration. That break­
+even point happens to be 48 in this example. At 48 at July expiration, each July 45 
+call would be worth 3 points, for a net gain of $400 on the two of them. The July 40 
+call would be worth 8 with the stock at 48 at expiration, representing a $400 loss on 
+that call. Thus, the gain and the loss are offsetting and the spread breaks even, except 
+for commissions, at 48 at expiration. If the stock is higher than 48 at July expiration, 
+profits will result. 
+Table 13-1 and Figure 13-2 depict the potential profits and losses from this 
+example of a reverse ratio spread. Note that the profit graph is exactly like the prof­
+it graph of a ratio spread that has been rotated around the stock price axis. Refer to 
+Figure 11-1 for a graph of the ratio spread. There is actually a range outside of which 
+profits can be made - below 42 or above 48 in this example. The maximum loss 
+occurs at the striking price of the purchased calls, or 45, at expiration. 
+There are no naked calls in this strategy, so the investment is relatively small. 
+The strategy is actually a long call added to a bear spread. In this example, the bear