Ratio Calendar Spread
A ratio calendar spread is an options position that combines two ideas: a calendar spread (also called a time spread), and an unequal ratio between the number of contracts sold and bought.
In a plain calendar spread, a trader sells an option expiring soon and buys an option with the same strike price expiring later, both calls or both puts. The near-term option loses time value faster than the far-term one, so the position is built to profit from that difference in decay, as long as the underlying stock stays roughly near the strike.
A ratio calendar spread changes the quantities so they are not one-for-one. For example, a trader might sell three near-term options and buy only one longer-dated option at the same strike. Selling more contracts than are bought brings in more upfront premium and changes the risk shape of the trade: it can make the position net short options overall, which means it carries uncovered ("naked") exposure on the extra contracts sold. That uncovered portion is what makes the ratio version riskier than a standard calendar spread — if the stock moves sharply, losses on the uncovered short options are not capped the way they would be if every short option were matched by a long one.
The nuance beginners miss is that "ratio" here refers strictly to the near-term versus far-term quantity split, not to strike prices. If the strikes were different instead of the expirations, that would be a different structure (a diagonal spread). Because part of the position is uncovered, margin requirements are higher than for a simple calendar spread, and the maximum loss is not always neatly defined.
This term depends on a rule or threshold that changes over time, so no specific figure is quoted here. The definition avoids stating specific margin requirement figures or formulas for the uncovered portion of a ratio calendar spread, since these are set by FINRA/exchange margin rules and vary by broker. A human editor should confirm current margin treatment for ratio/uncovered options spreads against FINRA margin rules and the trader's broker before publishing any specific numbers.
A day trader needs to know this structure carries open-ended risk on the uncovered contracts, unlike a fully hedged calendar spread, so a fast, sharp move in the underlying can produce losses well beyond what the collected premium would suggest.
Suppose a stock trades at $50. A trader sells three 30-day $50 calls for $1.20 each ($360 collected) and buys one 90-day $50 call for $3.50 ($350 paid), for a net credit of about $10. Two of the three short calls are uncovered by the single long call. If the stock stays near $50 through the near-term expiration, the short calls expire worthless and the trade can profit from the credit plus the value remaining in the long call. But if the stock instead jumps to $65, the uncovered short calls can generate losses far larger than the $10 credit received.
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