What is a Front Ratio Call Spread? Strategy, Setup & Payoff Explained
5paisa Research Team
Last Updated: 30 Apr, 2025 03:03 PM IST

Content
A Front Ratio Call Spread is an options strategy that involves buying one At-the-Money (ATM) call option and selling two Out-of-the-Money (OTM) call options of the same expiry. This strategy is implemented when a trader expects the market to remain neutral or moderately bullish. It is structured to benefit from a rise in the underlying up to a certain level, while also generating a net credit at initiation.
Since the trader sells more options than they buy, the strategy earns a net premium upfront. It generates maximum profit when the underlying rises slightly toward the short call strike at expiry. However, if the underlying moves sharply higher beyond the breakeven level, the uncovered short call can lead to unlimited losses.
This is a strategy best suited for experienced options traders who can manage risk and make adjustments if the underlying begins trending strongly upward. Let’s understand the concept with the help of an example:
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