The Ratio Hedge

The key to success is to find some overpriced options. E.g , on April 30 of 2001, Rambus (RMBS) was at 16 and the Jan 2003 25 call was 8. Buying the stock and selling two Jan 03 calls at 8 gives us 16 points in premium, offsetting all the risk of owning the stock. However we are naked one option above 25.

This Strategy has a very wide profit range, from a Rambus price of 0-50.

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