Ratio Call Writing 
Two basic types of call writing have been described in previous chapters: covered call 
writing, in which one owns the underlying stock and sells a call; and naked call writ­
ing. Ratio writing is a combination of these two types of positions. 
THE RATIO WRITE 
Simply stated, ratio call writing is the strategy in which one owns a certain number 
of shares of the underlying stock and sells calls against more shares than he owns. 
Thus, there is a ratio of calls written to stock owned. The most common ratio is the 
2:1 ratio, whereby one owns 100 shares of the underlying stock and sells 2 calls. Note 
that this type of position involves writing a number of naked call options as well as a 
number of covered options. This resulting position has both downside risk, as does a 
covered write, and unlimited upside risk, as does a naked write. The ratio write gen­
erally wilI provide much larger profits than either covered writing or naked writing if 
the underlying stock remains relatively unchanged during the life of the calls. 
However, the ratio write has two-sided risk, a quality absent from either covered or 
naked writing. 
Generally, when an investor establishes a ratio write, he attempts to be neutral 
in outlook regarding the underlying stock. This means that he writes the calls with 
striking prices closest to the current stock price. 
Example: A ratio write is established by buying 100 shares of XYZ at 49 and selling 
two XYZ October 50 calls at 6 points each. If XYZ should decline in price and be 
anywhere below 50 at October expiration, the calls will expire worthless and the 
writer will make 12 points from the sale of the calls. Thus, even if XYZ drops 12 
points to a price of 37, the ratio writer will break even. The stock loss of 12 points 
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