What is a Variable Ratio Write?
Variable ratio writes are an investment strategy that involves the writing of two strikes using a fixed number of shares of an underlying security. In most examples of the variable ratio write, the underlying security will be at least a hundred shares. The basic idea for the variable ratio write is to hold a long position with the security while writing multiple option contracts at different strike prices. The process involved with a variable ratio write is somewhat similar to that of ratio call writing in general. What distinguishes the approach is that a variable ratio write will involve two options written for the block of one hundred shares of the underlier. The type of calls can vary with this approach, since the variable ratio write may be accomplished with both in the money and out of the money calls. One common approach to a variable ratio write is to employ what is sometimes referred to as a two to one strategy. This involves being long in the hundred shares and writing two di
