Questions / Quant trading, Options & hedging
A ratio spread changes its tail slope
A European ratio call spread buys one strike-50 call and sells two strike-60 calls, all on one unit with the same expiry. Net premium paid is 1 point. What is P&L at terminal price 80?
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Answer: -11 points
- The long call pays 30, while the two short calls owe 2×20=40. After the one-point debit, P&L is 30−40−1=−11.
Interview shortcut. Above 60 the extra short call loses one-for-one: 30 − 40 − 1.
In the app this has a follow-up where one thing about the setup changes. Try the follow-up.