Variable Ratio Write

A variable ratio write is an options strategy where someone who owns shares of a stock sells (writes) two call options against that stock position, but the two calls have different strike prices instead of the same one. "Writing" a call means selling someone else the right to buy your shares at a fixed price before a certain date, and in exchange you collect a payment called a premium up front.

In a plain covered call, an investor holding 100 shares sells one call option against those shares. A variable ratio write adds a second call, usually sold against the same 100 shares, so the investor is now short two calls but long only one round lot of stock. Because the two calls have different strikes, the position behaves differently depending on which price zone the stock ends up in: below the lower strike, above the higher strike, or in between. Typically one strike is set close to the current stock price and the other further away, which changes the income collected and the risk profile compared with writing two calls at the same strike.

The nuance that trips people up is the word "variable" combined with "ratio." The ratio refers to the number of calls sold versus shares owned, here two calls against one 100-share lot. It's "variable" because the two options have different strikes, not because the ratio itself changes over time. People sometimes confuse this with a plain "ratio write," where both calls share the same strike, or with a ratio spread, which involves buying and selling calls in unequal numbers rather than owning the underlying stock outright.

Because one of the two calls is written without full share coverage on that portion, this strategy carries more risk than a standard covered call. If the stock rallies sharply past both strikes, the trader is exposed to losses on the uncovered portion of the position, which can be substantial and is not capped the way a fully covered call's risk is.