Ratio Calendar Combination

A ratio calendar combination is an options position built from two "ratio calendar spreads" stacked together — one using call options, one using put options — placed on the same underlying stock and expiring at the same set of dates. A calendar spread itself involves selling a near-term option and buying a longer-term option at the same strike price, aiming to profit from the faster time decay of the short-dated option. "Ratio" means the number of options bought and sold isn't 1-for-1; for example, a trader might sell two near-term options for every one longer-term option bought.

In a ratio calendar combination, this ratio calendar spread is run twice: once with calls at a higher strike price, and once with puts at a lower strike price. The call strike sits above the put strike, so the position has no overlap in the middle — it resembles a wide, hollowed-out structure with defined zones of risk and reward rather than a single peak of profitability.

The nuance that trips people up is that this is really two separate multi-leg trades layered into one, so it carries the risks of both calendar spreads (sensitivity to time decay and to the passage of the near-term expiration) and both ratio elements (uncovered, or "naked," extra contracts on one side of each spread, which can produce open-ended risk if the stock moves sharply). Because it involves four or more option legs across two expirations and two strikes, commissions, bid-ask spreads, and margin requirements can meaningfully affect whether the trade is worthwhile, and the position needs to be watched closely as the near-term legs approach expiration.