Chapter 11: Ratio Call Spreads 211 
The maximum profit at expiration for a ratio spread occurs if the stock is exact­
ly at the striking price of the written options. This is true for nearly all types of strate­
gies involving written options. In the example, if XYZ were at 45 at April expiration, 
the April 45 calls would expire worthless for a gain of $600 on the two of them, and 
the April 40 call would be worth 5 points, resulting in no gain or loss on that call. 
Thus, the total profit would be $600 less commissions. 
The greatest risk in a ratio call spread lies to the upside, where the loss may the­
oretically be unlimited. The upside break-even point in this example is 51, as shown 
in Table 11-1. The table and Figure 11-1 illustrate the statements made in the pre­
ceding paragraphs. 
In a 2:1 ratio spread, two calls are sold for each one purchased. The maximum 
profit amount and the upside break-even point can easily be computed by using the 
following formulae: 
Points of maximum profit = Initial credit + Difference between strikes or 
= Difference between strikes - Initial debit 
Upside break-even point= Higher strike price+ Points of maximum profit 
In the preceding example, the initial credit was 1 point, so the points of maxi­
mum profit = 1 + 5 = 6, or $600. The upside break-even point is then 45 + 6, or 51. 
This agrees with the results determined earlier. Note that if the spread is established 
at a debit rather than a credit, the debit is subtracted from the striking price differ­
ential to determine the points of maximum profit. 
Many neutral investors prefer ratio spreads over ratio writes for two reasons: 
TABLE 11-1. 
Ratio call spread. 
XYZ Price of April 40 Coll April 45 Coll Total 
Expiration Profits Profits Profits 
35 -$ 500 +$ 600 +$100 
40 - 500 + 600 + 100 
42 - 300 + 600 + 300 
45 0 + 600 + 600 
48 + 300 0 + 300 
51 + 600 - 600 0 
55 +1,000 -1,400 - 400 
60 + 1,500 -2,400 - 900