212 Part II: Call Option Strategies 
FIGURE 11 • 1. 
Ratio call spread (2: 1 ). 
Stock Price at Expiration 
1. The downside risk or gain is predetermined in the ratio spread at expiration, and 
therefore the position does not require much monitoring on the downside. 
2. The margin investment required for a ratio spread is normally smaller than that 
required for a ratio write, since on the long side one is buying a call rather than 
buying the common stock itself. 
For margin purposes, a ratio spread is really the combination of a bull spread 
and a naked call write. There is no margin requirement for a bull spread other than 
the net debit to establish the bull spread. The net investment for the ratio spread is 
thus equal to the collateral required for the naked calls in the spread plus or minus 
the net debit or credit of the spread. In the example above, there is one naked call. 
The requirement for the naked call is 20% of the stock price plus the call premium, 
less the out-of-the-money amount. So the requirement in the example would be 20% 
of 44, or $880, plus the call premium of $300, less the one point that the stock is 
below the striking price - a $1,080 requirement for the naked call. Since the spread 
was established at a credit of one point, this credit can also be applied against the ini­
tial requirement, thereby reducing that requirement to $980. Since there is a naked 
call in this spread, there will be a mark to market if the stock moves up. Just as was 
recommended for the ratio write, it is recommended that the ratio spreader allow at 
least enough collateral to reach the upside break-even point. Since the upside break­
even point is 51 in this example, the spreader should allow 20% of 51, or $1,020, plus