Ratio call write is an optional strategy that is used by the investors while selling or purchasing shares. In ratio call write strategy the investor owns shares in underlying stock and tends to write more on money-call option as compared to the amount of underlying shares owned by the investors. The major objective of ratio call writes to acquire the premium or to capture the premium that is received by the option sale of the stocks. The hope or the expectation of the call writer while writing the ratio call is that there will be a little volatility in underlying stock in the same accounting period. The word ratio is used in the ratio call write and this word means that the number of options that exist to be sold for every amount of 100 underlying stock in that accounting period.
For example in a case of 3:1 scenario of ratio call write there is an implication of writing three call option contracts on a number of 300 call options availability and being long one hundred shares of that particular asset. The process of paying off from holding the asset and along with writing the call is presented in the form of reverse straddle.
Although the ratio call write has a number of advantages however the profit range of this process is very narrow or little. A trader has to pay a considerable amount of money as a result of a sudden drop in the price of the shares. If the price of the underlying shares increases unchecked the investor will lose a lot.