Call Ratio Spread Credit/Debit
Script name: Call ratio spread credit indicator
Script name: Call ratio spread debit indicator
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There is a substantial risk of loss in trading stocks, futures and options. Past performance is not indicative of future results.
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Input parameters explanation
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1. The credit received or the debit paid for the strategy (1 unit).
a. Minimum value: for stocks 0.01 / for futures 0.00001; only positive numbers.
b. If debit for 1 strategy unit is $1 insert 1.
c. If credit for 1 strategy unit is $0.5 insert 0.5.
d. 1 unit explained – enter the net debit or net credit of 1 ratio spread only.
2. The stock price when bought/sold the options.
a. Minimum value: zero; only positive numbers.
3. Upper Strike price of the strategy.
a. Minimum value: zero; only positive numbers.
b. The strike price of the call that was sold.
4. Lower Strike price of the strategy.
a. Minimum value: zero; only positive numbers.
b. The strike price of the call that was bought.
5. Upper Strike numbers of calls [sold].
a. Minimum value: 1; only positive numbers.
b. This number has to be greater than the number of calls that were bought.
6. Lower Strike number of calls [bought].
a. Minimum value: 1; only positive numbers.
b. This number has to be less than the number of calls that were sold.
7. Interest rate: annualized continuously compounded riskfree rate of return over the life of the options.
a. Minimum value: zero; only positive numbers.
b. U.S. Department of the treasury – find it here
8. Time to expiration of the options, specify the number of days.
a. Minimum value: 1; only positive numbers.
b. Only integer numbers. No half days allowed.
c. The number of days to expiration has to be matched with the date entered below! The date and the number of days should not be changed by the user, as time passes.
9. Annualized asset price volatility, specific as a positive decimal number. IV 10% => input 0.1
a. Minimum value: zero; only positive numbers.
b. Find it in the “options chain”, in your brokerage platform.
10. A calendar day of the month that the option bought/sold.
a. Input 1 to 31 depending on the calendar date.
11. Calendar month the option bought/sold.
a. Input 1 to 12 depending on the calendar date.
12. Calendar year the option bought/sold.
a. Minimum value: 1970.
b. The year format is 4 digits number.
Indicator chart explanation
Strategy with Credit
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2 MaxProfit is lost – if the price reaches this line, the position lost 2 times the max profit that could be received by the strategy.

1 MaxProfit is lost – if the price reaches this line, the position lost the max profit that could be received by the strategy.

1 Credit loss – if the price reaches this line, the position lost 1 credit.

Breakeven line – this line means that if the price got there, the unrealized profit is zero.

1.05 credit up/down – if the price reaches this line, the unrealized profit is 1 credit.

50% max profit up/down – if the price reaches this line, the unrealized profit is 50% of the max profit that could be received by the strategy.

Pink area – below the lowest green line, you will receive 1 credit.
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Example:
The credit received from the strategy: $2.45 (remember the multiplier for stocks is 100, the credit is $245).
The price of the stock: $78
The upper strike price: $82.5
The lower strike price: $75
Calls ratio: 2 to 1
Riskfree rate: 0%
Days to expire: 60
Implied Volatility: 64.4%
Date: 21/09/2020
Max profit: $995
If at expiration the price will finish under $75.13, the strategy will win full credit ($245).
If at expiration the price will finish between $75.13 to $89.87 the strategy will profit between 1 credit to max profit
($245 to $995).
If at expiration the price will finish at exactly $77.51 or $87.48 the strategy will win 50% of the max profit (blue line) ($497.5).
If at expiration the price will finish at exactly $92.43 the strategy will break even (yellow line).
Strategy with debit
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2 MaxProfit is lost – if the price reaches this line, the position lost 2 times the max profit that could be received by the strategy.

1 MaxProfit is lost – if the price reaches this line, the position lost the max profit that could be received by the strategy.

0.95 debit up/down – if the price reaches this line, the position is 95% of the debit.

Breakeven line up/down – this line means that if the price got there, the unrealized profit is zero.

50% max profit up/down – if the price reaches this line, the unrealized profit is 50% of the max profit that could be received by the strategy.
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Example:
The debit paid for the strategy: $4.26 (remember the multiplier for stocks is 100, the credit is $426).
The price of the stock: $78
The upper strike price: $100
The lower strike price: $77.5
Calls ratio: 2 to 1
Riskfree rate: 0%
Days to expire: 60
Implied Volatility: 64.4%
Date: 21/09/2020
Max profit: $1824
If at expiration the price will finish under $77.71, the strategy will lose the debit paid ($426).
If at expiration the price will finish between $81.76 to $118.24 the strategy will be in the profit zone.
Different uses for the indicator
Volatility changes: the indicator can be used to give an estimation about the profit/loss lines as a function of volatility changes.
+20% Volatility increase
20% Volatility decrease
Tip: you could add the indicator twice, so you will have a reference point as the charts above.
Lower timeframes: the indicator can be used for intraday plotting while using a lower timeframe than Daily. This is automatic.
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For Futures users
Please note that the futures indicator and the stocks indicator are not the same.
The algorithm is made of different equations for futures. Also using the stock indicator on futures will not work properly.
The stock indicator on Futures will not work.
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The future indicator on Future will work
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Example on gold futures:
The algorithm is made of different equations for futures.
Even if it looks to be working normally, the result will not be accurate.
In the picture below, the strong lines are the future indicator VS the stock indicator (weak lines).
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Notes
TradingView considerations
The indicator is subject to the platform constraints, meaning updates in the platform could change the intended results of the indicator. See the following examples:
Holiday Updates: the indicator is updated 2 years ahead, TradingView updates only the current year. Using long term strategies, especially at the end of the calendar year, could result in a discrepancy at the expiration date that is displayed.
Some indicators have a “fill” option available. When using different timeframes, the fill could be out of place.
We recommend the users to save the indicator settings. This is because once in a while there will be updates in the indicators. Once the update is loaded to Tradingview, the settings will convert to the default settings. We will announce updates in advance.
Algorithm considerations
IPO stocks – the life of the option needs to be less than the amount of time the stock is in the market. If it is more, only partial calculations will be displayed. For example, the stock is trading 1 month in the market (ever). Calculating for an option with a life of 2 months will not display the entire calculations for the whole life of the option.
“Data Reset” – loading many bars can result in a slower running time of the indicator. To avoid this, zoom in the chart so you will see only a few bars, then change to different stock, and then change again to the original (intended) stock.
Lower timeframes – the indicator is always doing the calculations, even if it is not being displayed. This can be confirmed when the tag “Calculation complete” is seen. If the tag is displayed but the indicator is not, this can be fixed by reloading more historical bars.
Higher timeframes – the highest timeframe that the indicator can be used, is Daily.
Futures/Stocks – the stock indicators cannot be used for futures and vice versa. Using the wrong indicators on the wrong instrument will result in wrong calculations and errors.
Calculation accuracy – the calculation error is less than 0.01%.
Theoretical model accuracy – the indicator is using the BlackScholes model. Due to price spreads and/or supply and demand realworld market dynamics, there will be a variation from the theoretical model and the realworld market prices. The model is most accurate when the strike price is close to the instrument price (at the money).
Time accuracy – in the futures markets the indicator might show an extra day after expiration due to holidays. The final result doesn’t change between the last day and the extra day.
Commissions – the algorithm does not take into account any commissions you might have.
Dividends and discounts – the user should be aware of upcoming dividends or discounts.
Personal note
If this indicator is truly helpful and gives you viable information please give us credit when using it.
If you have any questions or requests please contact us. We will be happy to help.