A long ratio call spread combines one short call and long two calls of the same expiration but with a higher strike. This strategy is essentially a bear call spread and a long call, where the strike of the long call is equal to the upper strike of the bear call spread.
Looking for either a sharp move higher in the underlying stock or a sharp move higher in implied volatility during the life of the options.
The initial cost to initiate this strategy is rather low, and may even earn a credit, but the upside potential is unlimited. The basic concept is for the total Delta of the two long calls to roughly equal the Delta of the single short call.
If the underlying stock only moves a little, the change in the value of the option position will be limited. But if the stock rises enough to where the total Delta of the two long calls approaches 200, the strategy acts like a long stock position.
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