Variable Ratio Option Writing

variable ratio option writing

The writing of options when only some of the underlying assets that may be called for delivery are owned by the writer. Professional option writers use variable ratio option writing to generate profits if the underlying asset price moves within an established range. Also called ratio writing.

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Variable Ratio Option Writing

An options investment strategy in which the owner of an underlying security writes a number of calls at different strike prices on that security. Generally, only one of those options is exercised (if any are at all), leaving the owner with only the profit of the option premiums. Variable ratio writes thus have limited profit potential, but carry the possibility that an option will be exercised at a price favorable to the writer.

The "variable ratio" in the term comes from the fact that the writer may write a theoretically unlimited number of options per 100 shares of the underlying security actually owned. Often, the owner writes two options per 100 shares, giving a 2:1 ratio.