Ratio Write
A ratio write is a position that includes selling multiple options for each futures position.
Profits are limited to the total premium received plus some appreciation in the futures position. Risk is unlimited on the upside and on the downside. This position is engaged in a high-volatility environment with the expectation that volatility will decline over time.
This trade is appropriate for declining volatility and a stagnant market.
Position Premium Dollar Premium Delta Buy one $20 crude oil futures +1.00 Sell two $22 calls - Net credit - Net delta $0.50 per call $1.00 $500 $1,000 -.58 +.42 Maximum risk Unlimited on the upside and theoretically on the downside Maximum profit $3,000 Break-even futures price $19.00 and $25.00 Position Premium Dollar Premium Delta Buy one $260 gold futures +1.00 Sell two $280 calls - Net credit - Net delta $1.10 per call $2.20 $110 $220 -.30 +.70 Maximum risk Unlimited on the upside and theoretically on the downside Maximum profit $2,440 Break-even futures price $255.60 and $304.40
THERE IS A RISK OF LOSS IN FUTURES TRADING AND IS NOT SUITABLE FOR
ALL INVESTORS. ONLY RISK CAPITAL SHOULD BE USED WHEN TRADING FUTURES.
Copyright 2008 Capitol Commodity Services, Inc. All Rights Reserved.
Education
- Futures Education
- Options Information
- Options Strategies
- Long At-the-Money Call
- Short Out-of-the-Money Call
- Covered Call
- Ratio Write
- Long Out-of-the-Money Call
- Long At-the-Money Put
- Short Out-of-the-Money Put
- Short Covered Put
- Bull Call Spread
- Bear Call Spread
- Bear Put Spread
- Bull Put Spread
- Long At-the-Money Straddle
- Long Strangle
- Short At-the-Money Straddle
- Short Strangle
- Call Ratio Backspread
- Put Ratio Backspread
- Synthetic Long Put
- Synthetic Long Call
- Synthetic Short Futures
- Synthetic Long Futures
- Fence
