Short Call Ratio Strategy (1x2)

A short call ratio strategy with a 1x2 structure involves buying one lower-strike call option and selling two higher-strike call options on the same underlying stock with the same expiration date. Because you sell more options than you buy, the two short calls usually more than pay for the long one, so the trade opens for a net credit. Traders use this setup when they are mildly bullish or neutral, expecting the stock to rise slightly toward the higher strike price but not blow far past it.

Your maximum profit occurs if the stock closes precisely at the higher strike price at expiration. At that target price, the long call reaches its maximum value while both sold calls expire worthless. However, because you have one unhedged short call remaining at higher prices, your maximum risk is unlimited if the stock surges dramatically upward. On the downside, if the stock plummets, your risk is limited to the initial net debit paid (or you keep the net credit collected).