A summary of the bull ratio spread and the bear ratio spread

Let’s first take up the bull ratio spread. This strategy is used when traders have a bullish outlook, but the market doesn’t seem to move much. So, how do you set up a bull ratio spread? You sell 2 lots of out of the money (OTM) call options. And you purchase 1 lot of at the money (ATM) call options. The options will have different intrinsic values but the same expiry. Up next, we have the bear ratio spread. This strategy is used when traders have a bearish outlook, but the market doesn’t seem to move much. So, how do you set up a bear ratio spread? You sell 2 lots of out of the money (OTM) put options. And you purchase 1 lot of at the money (ATM) put options. Here too, the options will have different intrinsic values but the same expiry. As you can see, in both these strategies, the number of short positions is twice the number of long positions. That is why these strategies are called ‘ratio’ spreads. Up next, we have the collar and calendar spreads. Keep reading to find out more about these strategies.