The Ratio Spread Option Strategy using Screeners
- Rohit More
- Jul 21
- 5 min read
How Indian Traders can Master It
Strategy is everything in the fast-paced world of options trading. Be it NIFTY, Bank NIFTY or any high-volume stock such as Reliance and HDFC, a strategic advantage may make the difference between systematic gains and random results. Ratio Spread Option Strategy is one of such complex and at the same time powerful strategies.
Ratio spreads may be your new best friend if you are a trader seeking to capture directional moves, manage risk and expense. It is however important to find the correct stock or index to implement it on. This is where the Ratio Spread Screener comes in—it is a dedicated tool that allows to find setups that are well suited to this strategy.
In this extensive blog we will discuss:
What is Ratio Spread Option Strategy?
Types: Debit Ratio Spread- Credit Ratio Spread
Is Ratio Spread a Bull or a Bear Strategy?
Ratio Spread Strategy Execution
Why You Need a Ratio Spread Screener
What Is the Best Stock Screener in India (Ratio Spreads)?
Best Practices & Risk Management
What is the Ratio Spread Option Strategy?
A Ratio Spread Option Strategy is a strategy which consists of purchasing and selling options of the same type (either all calls or all puts) on the same underlying asset and expiry but in different amounts and strike prices. Typically, the trader will purchase one option and sell two (or more) options at a different strike.
The strategy aims to:
Directional movement profit (intermediate bullish or bearish)
Reduce the cost of premiums
Time decay (theta) advantage.
Establish positive risk-reward ratios
Call Ratio Spread Example:
Buy 1 NIFTY 25000 Call @ 120
Sell 2 NIFTY 25,200 Calls @ 60 each
Break-even Net Premium = 0
The strategy will gain when NIFTY makes a moderate (but not a huge) rally above 25,000, preferably closing around 25,200 at expiry.
Ratio Spreads Types
1. Debit Ratio Spread
This happens when the premium on the long position is greater than the premium received on the short positions. You use it when you anticipate high directional movement in the underlying asset.
Example: Buy 1 NIFTY 25,000 Call @ 120
Sell 2 NIFTY 25,300 Calls @ 40 per call
Net Debit = 40
The debit ratio spread involves an initial outlay of funds, but has greater potential gains on a successful move.
2. Credit Ratio Spread
In this case, the premium obtained by selling the options will be more than the premium paid on the long leg. It is applied when the neutral and slightly directional movement is anticipated.
Example: Sell 1 NIFTY 25,000 Put @ 80
Sell 2 NIFTY 24,800 Puts @ 60 each
Net Credit = 40
The credit ratio spread offers initial income and has a risk when the underlying makes a sudden move in either direction.
Is Ratio Spread a Bull or Bear Strategy?
One of the most frequent questions is:
Question: Is ratio spread a bullish or a bearish strategy?
The question is dependent on the kind of options employed:
Call Ratio Spread = Slightly Bullish
Put Ratio Spread = Slightly Bearish
Both can however be modified to represent neutral opinions based on the choice of strikes. The Ratio spread option strategy is beautiful in the sense that it can be customized.
Ratio Spread Strategy Execution
This strategy takes a couple of steps to implement:
1. Choose Underlying Asset
Select stocks/indices that have moderate implied volatility and whose price behaviour can be predicted. The popular choices are NIFTY, Bank NIFTY, Reliance, HDFC Bank, and Infosys.
2. Select Directional Bias
Determine whether you are bullish (calls) or bearish (puts). The strategy works best when the directional move is mild to moderate.
3. Strike Selection
Buy one ATM/ITM option
Sell 2 OTM options at a strike price which represents your target expiry price.
4. Premium Structure
Make sure your risk/reward is in line- either when you are taking a credit or when you are making a small debit.
5. Risk Management
Breakeven points and max loss should always be calculated. Employ stops or exit strategies to deal with abrupt market moves.
Why You Need a Ratio Spread Screener
The effectiveness of the ratio spread strategy usually depends:
Right volatility range
Strike pricing opportunities
Time decay dynamics
The price momentum of Underlying
Manually scanning all of this? Laborious and inaccurate.
And that is why a Ratio Spread Screener is needed. It mechanizes the identification of:
Favourable option pricing structure.
The perfectly volatile stocks
Zero-cost or credit spread opportunities
Good risk-reward ratios using existing premiums
An effective screener must assist you:
Compare debit vs credit spreads
Scan varying expiry cycles
Detect desirable skew in IVs
Align market sentiment with strike distances
Which is the Best Stock Screener in India (Ratio Spreads)?
This brings to one of the principal questions:
Which is the best stock screener in India to do ratio spreads (or to plan them)?
General screeners are abundant, whereas options traders specific screeners are few. However, the next sites are excellent in ratio spread filtering tools:
1. Sensibull (Zerodha Integration)
It is the Indian most popular options trading platform. It has ratio spread builder and backtesting facilities. You can filter by strike, premium and volatility.
2. Opstra Definedge
Specialized in IV charts and strategy builders. The Strategy Engine can be used to model debit ratio spreads and credit ratio spreads.
3. FYERS Sensitivity Tools or Dhan
The new-gen apps like Dhan or FYERS give ratio spread templates and data filters to options builders when they trade directly with brokers.
4. TalkOptions (Emerging player)
Master of ratio, butterfly, and IV-based screeners. Displays real-time risk-reward statistics and spread set up alerts.
Both of these screeners may help to answer:
The ratio spread strategy: the way to do it with the least risk
And whether the current spread is credit spread or debit spread
When the trade is in accord with your market bias.
Real Market Example: NIFTY Ratio Spread Strategy
Market View: Slightly Bullish
NIFTY Spot 25,000
Buy 1 Lot 25,000 CE @ 120
Sell 2 Lots of 25,200 CE @ 60 each
Net Premium = 0 (Neither debit or credit)
Max Gain when NIFTY closes at 25,200 = 10,000 approx
Max Loss when NIFTY expires significantly above 25,200 or significantly below 25,000 = ₹Unlimited (has to be corrected)
This would be indicated by a ratio spread screener:
Zero debit arrangement
High ROI when expiry equals sold strike
Dangerous alert in case the market goes crazy
With screeners, you would receive this trade idea prior to execution including break-even, payoff graph and risk profile.
Debit vs Credit Ratio Spreads When To Use
Debit Ratio Spread should be used when:
You are looking forward to a big directional move
The volatility is minimal, premiums are cheap
You want minimal loss and superior upside
Use Credit Ratio Spread when:
You look for sideways to moderate move
It is volatile, premiums are costly
You desire to make premium and restrict max loss
Screeners assist in comparing many scenarios and indicate whether a debit or credit ratio spread is suitable to your market view.
Risks Adjustments
Risks:
Unlimited loss above sold strike
Impulsive increase in volatility (gap-up/gap-down)
Poor liquidity in far OTM strikes
Adjustments:
Hedge (purchase an additional OTM option)
Apply stop-loss on underlying movement
Early close when spread is 60 70% of max profit
The ratio spread option strategy is a versatile, potent play- particularly to traders seeking beyond the elementary long calls or puts. But implementation is everything.
And that is where a Ratio Spread Screener turns into your secret weapon.
Whether it is locating the appropriate stock or deciding on whether a debit ratio spread or a credit ratio spread is more appropriate, screeners make complexity a breeze.
Well, suppose you want to know,
“What is the best stock screener in India (to find ratio spreads and so on)?”
It can be found in the type of trade you make- but Sensibull, Opstra, and TalkOptions all have the capabilities to scan, simulate, and strike with precision.
