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Market Intelligence › Basic Terminologies
The math of an unbalanced position and the part where the loss is not capped
Published by The Retail Trader · AUG 06, 2026 · Derivatives (F&O)
In a ratio spread you sell more options than you buy. The payoff chart looks attractive at first glance, and one corner of that same chart is left open.
A common form is buying one option and selling two, often at zero cost or a credit. You receive money at entry, and over a wide range the position looks profitable.
That very zero cost part is the most dangerous, because it hides the risk. Receiving money does not mean the risk is lower.
The extra sold leg means this:
• On one side the position behaves like a naked short — the loss can in theory be large.
• In a big, fast move the loss can be many times the profit.
• Margin is also charged according to that naked portion, and it rises in volatility.
• Adjustment is expensive exactly when it is most needed.
In any option position the first question should be — what is the worst that can happen, and is that number smaller than my account. If the answer to that question is "that cannot happen", then you have not got an answer.
This article is for educational purposes only — it is not a buy or sell recommendation, makes no guaranteed-return claim, and is not advisory. Rules, rates and mechanics are changed from time to time by the exchanges, SEBI and RBI, so verify every number yourself with your broker or an official source.