Consider a Ratio Spread Comprising a Call at Strike $K _ { 1 }$

question 1

Multiple Choice

Consider a ratio spread comprising a call at strike $K _ { 1 }$ and short two calls at strike $K _ { 2 } > K _ { 1 }$ . The current stock price is at $K _ { 1 }$ . The market view for this trade is most likely to be:

• A) That the stock is more likely to fall in price than rise in price.
• B) That volatility of the stock is likely to rise.
• C) That the stock is likely to experience high levels of positive skewness in returns.
• D) That the stock will rise but not by an indefinite amount.

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