Tuesday 16 Jun 2026. The June Nifty future settled at 24,001.00. On that chain I could buy one 24,000 call at Rs 227.05 and sell two 24,200 calls at Rs 137.35 each, and the position would take in 47.65 a unit: Rs 3,097 on a lot of 65 units, with no premium paid out. On Tuesday 30 Jun Nifty closed at 23,865.75, under both strikes, every call expired worthless and the credit stayed. Run the same shape on Wednesday 10 Jun, with the strikes at 23,250 and 23,450, and the credit was Rs 8,557. The same 30 Jun close turned it into −Rs 5,466. That is a ratio spread: it is paid up front for a risk with no ceiling. Its mirror, the backspread, pays for the opposite risk. Every figure is an NSE end of day settlement, dated, so nothing is live and nothing says where Nifty goes next.
3By the end you can
- Draw the payoff of a 1 by 2 call ratio spread and a backspread and find the peak, the valley and the breakeven.
- Read the position Greeks of each and say why a 1 by 2 is not delta neutral.
- Compare two entry dates of one shape and name what the credit leaves out.
The idea, plainly
A ratio spread has two strikes, one expiry and unequal quantities. A backspread is the same two strikes held the other way round. The name only says how many options sit on each side.
What is a call ratio spread?
Buy one call at the lower strike and sell two at the higher strike. The market calls that a 1 by 2. Because the sold calls are further out of the money, two of them can bring in more than the one you bought, so it often opens for a credit. Now walk the index up from below the lower strike.
- Below the lower strike: all three calls expire worthless and you keep the credit.
- Between the strikes: the bought call gains and the sold calls still cost nothing, so the position gains up to a peak at the higher strike.
- Above the higher strike: the bought call gains one point for each point, the two sold calls lose two. Net you are short one call. The position gives back a point for every point, and there is no floor.
The credit is the cushion that moves the break-even above the peak. The peak is a prize for the index finishing close to the sold strike, and the tail is the price.
A call ratio spread peaks at the sold strike, then loses a point for every point
The maths: peak, breakeven and slope
Call the lower strike L and the upper strike U. Sell n calls at U against one bought at L. The credit per unit is n × (call at U) − (call at L).
Peak, index at U
= (U − L) + credit
Breakeven above U
= (n × U − L + credit)
divided by (n − 1)
Slope above it = −(n − 1)
For n = 2 the breakeven is 2 × U − L + credit and the loss grows one point for each point of rise. For n = 3 the slope is two points per point, and the breakeven comes closer to U. A higher n takes in more credit and makes the tail steeper.
What do you own in Greeks?
Take the 16 Jun ratio spread and read its Greeks from the chain, each leg at its own implied volatility. They show the trade is not as flat as its peak looks.
| 16 Jun 2026 | Ratio spread | Backspread |
|---|---|---|
| Delta a unit | −0.225 | 0.225 |
| Vega, a vol point | −Rs 1,077 | Rs 1,077 |
| Theta, a day | Rs 444 | −Rs 444 |
Read 2 more paragraphs, 142 words
The ratio spread is short delta, short vega and long theta. A rise in implied volatility of one point costs Rs 1,077 before Nifty moves, and a quiet day pays Rs 444. It is short gamma too: each point up makes the delta more negative, which is why the loss in the tail speeds up before it settles at one point per point. A short volatility position is paid in decay and billed in jumps.
The 1 by 2 is not even delta neutral. The bought 24,000 call had a delta of 0.504 and each sold 24,200 call 0.365. Neutral needs 1.38 sold calls for each one bought, so selling two leaves the position short from the first day. The ratio that is neutral today is not neutral tomorrow, because the deltas change as the index and the days move.
What is a call backspread?
Sell one call at the lower strike and buy two at the higher strike. The credit and the debit swap sides. On 16 Jun the same strikes cost 47.65 a unit, Rs 3,097 a lot. Below the lower strike it loses that debit. Between the strikes it loses more, down to a valley at the higher strike, where the long calls are still worth nothing and the short one has gained 200 points against you. Above the valley the two bought calls start to outrun the one sold, and from 24,447.65 the position is in profit with no ceiling. It owns the volatility the ratio spread sold.
A call backspread has its worst day at the bought strike and no ceiling above
Read one more paragraph, 57 words
A backspread asks for a large move and punishes a small one. The index has to travel past the valley before time and the debit are paid back. It also asks for volatility to hold: the position is long vega, so a fall in implied volatility works against it even when the index moves the right way.
Which side of the chain do traders ratio?
The sold wing of a put ratio spread tends to be paid more. On 16 Jun the 23,800 put, 0.84% under the future, had an implied volatility of 12.4%. The 24,200 call, 0.83% over it, had 11.8%. A put ratio sells the richer volatility and puts the open risk on the downside. That is the skew of module A03, and it is a price, not a free edge: falls in the index often arrive with a jump in implied volatility, which hurts a short vega position twice.
What does it cost to hold in India?
- Margin. The sold calls carry SPAN and exposure margin from NSE Clearing, and the one bought call offsets only part of them. The sold lots past the first are uncovered, so the margin follows the index up.
- Upfront premium. SEBI's circular of 1 Oct 2024 collects net option premium upfront from 1 Feb 2025. A net credit does not release cash: the margin on the uncovered call is blocked against it.
- STT. 0.15% of the premium on the sold lots, which was Rs 26.78 on the two sold calls of the 16 Jun example, and 0.15% of the intrinsic value on a long leg that is exercised in the money.
- Expiry day. Short index options expiring that day carry an extra 2% of extreme loss margin, and the margin benefit between expiries ends that day. Both bear on a naked leg.
Worked example: one shape, two entry dates
Both ratio spreads expire on Tuesday 30 Jun 2026 and are settled on the index close for expiries before 7 Dec 2026. The lot is 65 units. The lower strike is near the future and the upper strike 200 points above it. Every price is a settlement price, so a real order would cross a bid and an ask on three legs.
| One lot | Entry 16 Jun | Entry 10 Jun |
|---|---|---|
| Bought, sold strike | 24,000 and 24,200 | 23,250 and 23,450 |
| Credit a unit | 47.65 | 131.65 |
| Credit a lot | Rs 3,097 | Rs 8,557 |
| Peak, at sold strike | Rs 16,097 | Rs 21,557 |
| Upper breakeven | 24,447.65 | 23,781.65 |
| At the 30 Jun close, 23,865.75 | Rs 3,097 | −Rs 5,466 |
| Index three percent over the future | 24,721.03 | 23,937.30 |
| Result there | −Rs 17,770 | −Rs 10,117 |
A week in, a rise of two percent hurts and a rise in implied volatility makes it worse
| Move in the future | 7 days after the example date, rupees | ||
|---|---|---|---|
| IV −3 | IV same | IV +3 | |
| −2% | +3,421 | +3,687 | +3,559 |
| 0% | +5,245 | +3,447 | +1,341 |
| +1% | +2,967 | −157 | −3,097 |
| +2% | −5,272 | −7,999 | −10,808 |
| +3% | −18,334 | −19,719 | −21,655 |
Green is profit and red is loss; deeper colour means a larger amount. The outlined cell is the starting point.
2 terms this section turns on
Read 4 more paragraphs, 297 words
The 16 Jun entry never came near its peak. The index closed 134.25 points under the bought strike, so the position simply kept the credit. That is the quiet outcome: the bought call earned nothing and the credit was kept. The 10 Jun entry went the other way. Nifty rose 2.8% between the 10 and 30 Jun closes, from 23,214.95 to 23,865.75, which carried it 84.10 points past its breakeven. The loss was Rs 5,466, against a credit of Rs 8,557.
Hold the mirror image in mind. A backspread on the 10 Jun strikes would have made Rs 5,466 at the same close, and the 16 Jun one lost its whole debit of Rs 3,097. The two structures are one bet seen from opposite sides, and the debit is what the side with no ceiling costs. Which one paid depended on the path, not on the structure. A backspread also needs its move to come before time eats the value of the two bought calls. In its chart the seven day curve sits above the expiry line around the valley and the breakeven: that gap is time value the position still owns, and it melts each day the index waits.
Now the grid. It marks the 16 Jun ratio spread a week later for moves in the future and shifts in implied volatility. Read along the row for an unmoved index, then down a column.
On a falling or flat index the position gains whichever way volatility goes. A rise of one percent already takes the flat volatility cell below zero, and from two percent every cell is red. A jump in implied volatility makes each row worse. The losses in the lower rows are several times the gains in the upper ones.
The common mistake
The belief: A ratio spread opened for a credit cannot lose money, because you are paid to take it.
The credit is a small number beside the tail. On 10 Jun the credit was Rs 8,557 and the position lost Rs 5,466 after a rise of 2.8% in the index. The 16 Jun position took in Rs 3,097, and a rise of three percent in the future would have cost Rs 17,770, 5.7 times the credit. One good outcome says little about the shape. SEBI's Aug 2026 study of individual equity derivatives traders found that 87.7% lost money in FY26. A position with a ceiling on its gain and none on its loss is how a run of small wins hides a large loss.
Key takeaways
- A ratio spread buys one option and sells more of a further strike.
- Above the upper breakeven it loses a point for each point, without limit.
- It is short gamma and short vega, and long theta.
- A backspread is the mirror: capped loss, no ceiling on the gain.
- The same shape on two dates gave a credit kept and a loss.
- A credit is smaller than the tail it pays for.
Two terms to hold on to from 17.16
Before you trade. Derivatives trading carries a high risk of loss. SEBI's study "Profitability of Individual Traders in the Equity Derivatives Segment (FY25 to FY26)" (August 2026) found that 87.7% of individual traders in equity F&O made net losses in FY26, with aggregate net losses of Rs 91,685 crore. Read the SEBI study