In today's volatile markets it is wise to add an extra layer of protection to your option selling trades. An effective tool for this is the ratio credit spread. Also known simply as a ratio spread, this strategy offers a layer of protection along with the ability to profit more if the market moves against your short options. The basic concept involves selling out-of-the-money naked options and using part of the premium collected to buy a close to, or at-the-money option. The premium left over is called the credit.
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