Call Front Ratio Spread (1x2): Asymmetric Bullish Bet

A call front ratio spread buys one ATM call and sells two OTM calls at a higher strike. Often executed for a small credit or zero cost. The structure has a profit zone in the middle and undefined risk above the upper short strikes.

Setup: buy 1 ATM call, sell 2 calls 5–10 points OTM, same expiration. Best result is the stock pinning to the short strike at expiration — max profit there. Above the short strike, the position turns into a naked short call and bleeds. Below the long call's strike, the structure expires worthless (or at the credit collected, if any).

Use case: high-IV environment where you have a moderate bullish bias but don't expect a big rally. The credit-or-zero-cost setup means a small move up captures profit, while a flat or slightly down move costs nothing. The unbounded upside loss is the catch — size carefully and have a defensive plan if the stock breaks through the short strikes.

Frequently Asked Questions

What's the worst-case scenario?

A sharp rally past both short strikes — the position becomes a naked short call with unlimited theoretical loss.

Should beginners trade ratio spreads?

No — undefined-risk structures require both capital and discipline. Master defined-risk verticals and condors first.

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