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Bullish Patterns
Long Calls
Bull Call Spread
Bull Put Spread
Call Backspread
Long Call Ratio Spread
Naked Put
Synthetic Long Stock
The Collar
Covered Calls
Synthetic Long Call
Synthetic Short Put
Covered Straddle
Covered Strangle
Married Put
Protective Put

Bearish Patterns
Long Puts
Bear Put Spread
Bear Call Spread
Put Backspread
Long Put Ratio Spread
Naked Calls
Synthetic Short Stock
Synthetic Short Stock (split strikes)
Covered Put
Protective Call
Synthetic Short Call
Synthetic Long Put

Long Volatility
Long Straddle
Long Strangle
Short Call Butterfly
Short Put Butterfly
Short Iron Butterfly
Short Call Condor
Short Put Condor
Short Iron Condor
Long Guts
Strip
Strap
Short Call Ladder
Short Put Ladder
Long Call Synthetic Straddle
Long Put Synthetic Straddle

Short Volatility
Short Straddle
Short Strangle
Long Call Butterfly
Long Put Butterfly
Long Iron Butterfly
Long Call Condor
Long Put Condor
Long Iron Condor
Short Guts
Long Call Ladder
Long Put Ladder
Call Ratio Spread
Short Call Ratio Spread
Put Ratio Spread
Short Put Ratio Spread
Ratio Call Write
Ratio Put Write
Short Call Synthetic Straddle
Short Put Synthetic Straddle
Variable Ratio Write

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Variable Ratio Write

Risk: unlimited
Reward: limited

General Description
Entering a variable ratio write entails selling (1) lower strike call and (1) higher strike call for every 100 shares of stock you own. It's similar to a ratio call write expect instead of selling (2) calls at the same strike, consecutive strikes are used.

(draw a variable ratio write risk diagram here)

The Thinking
You are long a stock and confident it will trade in a tight range and won't move much from its current level. To profit from a lack of movement, selling options, which benefit from time decay, is a good route to go. If the stock moves up a little or down a little, you'll profit. It would take a relatively big move for the trade to lose you money. Using staggered strikes widens the profit zone at the expense of lowering the profit potential.

Example
XYZ is at $57.50. You buy 100 shares of stock at $57.50 and then sell (1) 55 call for $4.00 and (1) 60 call at $1.00. The net credit is $5.00, not including the stock.

Between the two strikes ($55 and $60), max profitability is achieved. As an example, at $57.5, the stock is unchanged, so there’s no profit of loss with the long stock position. The 55 call will be worth $2.50 ($1.50 gain), and the 60 call will be worthless ($1.00 gain). The net is a $2.50 profit.

Above the highest strike, the gain from the long stock will be countered by a loss from one of the short calls, and the other short call will lose you money point-for-point with the underlying. For example, at $65, the stock will be up $7.50, the 55 call will be worth $10 ($6.00 loss) and the 60 call will be worth $5 ($4.00 loss). The net of this is a $2.50 loss.

Below the lowest strike, all calls expire worthless, and your loss will be linked to the stock moving against you. For example, at $45, the 55 and 60 calls expire worthless ($4.00 profit and $1.00 profit), and the stock will be down $12.50. The net of this is a $7.50 loss.

The PL chart below graphically shows where this trade will be profitable and at a loss.