Ratio Spread

An options strategy in which a trader buys and sells options of the same type (all calls or all puts) on the same underlying asset at different strike prices, but in unequal quantities. A common example is a 1x2 ratio call spread: buying one call at a lower strike and selling two calls at a higher strike. The strategy is typically entered for a small net debit or credit and profits if the underlying moves moderately, but carries unlimited risk on the extra short contracts if the move is too large.