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Bull Ratio Spread

A Bull Ratio Spread involves buying one call option at a lower strike price and selling multiple call options at higher strike prices. It profits from moderate price increases but carries higher risk if the price rises sharply.

  • Ideal for moderately bullish conditions, where a limited price rise is expected.
  • Buying an ATM call and selling OTM calls helps reduce the initial cost and increases premium income.
  • Risk increases significantly if the price rises sharply beyond the sold strikes.
  • Profit is capped if the price rises moderately within the range of sold strikes.

Example:

  • NIFTY trading at 18,000.
  • Buy 18,000 Call at ₹200 and sell 2 × 18,300 Calls at ₹100 each (lot size = 50).
  • Outcome:
    1. If NIFTY rises to 18,300 at expiry:
      • Gain on bought call = ₹300 × 50 = ₹15,000.
      • Loss on sold calls = ₹0.
      • Net profit = ₹15,000 − ₹0 − ₹5,000 (net premium) = ₹10,000.
    2. If NIFTY rises to 18,400 at expiry:
      • Gain on bought call = ₹400 × 50 = ₹20,000.
      • Loss on sold calls = ₹200 × 50 × 2 = ₹20,000.
      • Net loss = ₹20,000 − ₹20,000 − ₹5,000 = ₹5,000.
    3. If NIFTY stays below 18,000 at expiry:
      • All options expire worthless.
      • Net loss = ₹5,000.
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