This strategy represents an adaptation of the previously discussed Batman Condor Spread where instead of limited risk, we have unlimited risk and a better reward.
The easiest way to achieve a similar payoff graph to Batman is by omitting the purchases of the farthest out-of-the-money (OTM) call and put options.
However, there’s an alternative method to construct a strategy with a comparable payoff structure:
A Call Ratio Front Spread where you utilize the same strikes for the distant OTM calls + A Put Ratio Front Spread, also employing the same strikes for the distant OTM puts.
This configuration maintains the twin-peak profit structure, similar to what we see in the BatmanCondor Spread, while potentially offering a different risk-reward balance tailored to specific market expectations.
Let’s look at both of the parts separately before we combine them.
Put Ratio Front Spread with Different Strikes for Distant OTM Puts:
Call Ratio Front Spread with Different Strikes for Distant OTM Calls:
The payoff graph for the Put Ratio Front Spread with the Same Strikes for Distant OTM Puts looks like this –
The payoff graph for the Call Ratio Front Spread with the Same Strikes for Distant OTM Calls looks like this –
Now, If we combine them, We get –
This exactly looks like Batman Condor Spread but it has a higher risk (unlimited) but also has a higher reward.