---
description: "A neutral-to-bearish income strategy selling more near-ATM calls at K1 than ITM calls bought at K2 < K1, collecting premium with unlimited upside risk above the upper breakeven."
tags: [options, income, neutral, ratio-spread]
---

# Ratio Call Spread

**Section**: 2.38 | **Asset Class**: Options | **Type**: Income

## Overview
The ratio call spread consists of a short position in N_S close to ATM call options with strike K1, and a long position in N_L ITM call options with strike K2 (K2 < K1), where N_L < N_S. Typically N_L = 1, N_S = 2 or N_L = 2, N_S = 3. This is an income strategy if structured as a net credit trade. The trader's outlook is neutral to bearish.

## Construction
- Sell N_S call options at strike K1 (near ATM)
- Buy N_L call options at strike K2 (ITM, K2 < K1, N_L < N_S), same expiry

Net debit or credit H

## Payoff Profile
f_T = N_L × (S_T - K2)+ - N_S × (S_T - K1)+ - H

- Lower breakeven (if H > 0): S*_down = K2 + H/N_L
- Upper breakeven: S*_up = (N_S × K1 - N_L × K2 - H) / (N_S - N_L)
- Max profit: P_max = N_L × (K1 - K2) - H  (in zone [K2, K1] range)
- Max loss: L_max = unlimited  (above the upper breakeven; net short calls)

## Key Conditions / Signals
- Neutral to mildly bearish; expects stock to remain below K1
- Structured as a net credit when possible (income strategy)
- High implied volatility makes the collected premium from extra short calls larger

## Notes
Unlike the call ratio backspread (where N_L > N_S), here N_L < N_S, so there is net short call exposure above K1 creating unlimited upside risk. The maximum profit is achieved if the stock stays in the [K2, K1] zone at expiry.