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:
- 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.
- 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.
- If NIFTY stays below 18,000 at expiry:
- All options expire worthless.
- Net loss = ₹5,000.
- If NIFTY rises to 18,300 at expiry: