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Short Bull Ratio Spread Simplified Version / Comprehensive Version


Purpose Of Short Bull Ratio Spread
1. To Profit From Rising Stocks
2. To Eliminate Upfront Payment For Call Options
3. To Protect Against Losses If Stock Falls Instead


Expectations Of Short Bull Ratio Spread
UP


Type Of Spread
Credit Spread


How To Use Short Bull Ratio Spread
A Short Bear Ratio Spread eliminates payment for At The Money (ATM) Call options by selling a smaller number of deep In The Money (ITM) Call options.

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Profit Potential of Short Bull Ratio Spread :
The Short Bull Ratio Spread has an unlimited profit potential. It will keep making more profit as long as the underlying stock keep rising.

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Profit Calculation of Short Bull Ratio Spread:
Profit = ((stock price - long call strike) x number of long call options) - (((stock price - short call strike) - short call intrinsic value) x number of short call options)

Maximum loss = Total Premium Value Of Long Call Options - Total Premium Value Of Short Call Options


Risk / Reward of Short Bull Ratio Spread:
Upside Maximum Profit: Unlimited

Maximum Loss: limited
Maximum loss occurs when the underlying stock closes exactly at the strike price of the Long Call Options.


Break Even Point of Short Bull Ratio Spread:
There are 2 breakeven points for a Short Bull Ratio Spread. The Upper Breakeven Point is point above which the position will start to make a profit. The Lower Breakeven Point is the point below which the position will lose only the net debit (if any).

Upper Breakeven Point = (Maximum loss / (number of long call options - number of short call options)) + Strike Price Of Long Call Options

Lower Breakeven Point = Strike Price Of the Short Call Options.

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Advantages Of Short Bull Ratio Spread :

  • No upfront payment needed for the position.

  • No loss occurs if the underlying stock falls drastically instead of rises.

  • Unlimited profit potential


    Disadvantages Of Short Bull Ratio Spread :

  • Broker needs to allow the trading of credit spreads.

  • Makes less profit than a long call option strategy on the same rise in the underlying stock.


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