Ratio Spreads Offer a Volatility Play

One of the great conundrums of options trading is the fact that you are working with an eroding asset.

The attraction of selling premium and letting the time decay work in your favor is both seductive and dangerous; statistics show that some 80% of all options expire worthless, but the 20% that do make it "into the money" usually deliver a high percentage return to their owners.

The tales of pain and loss inflicted on those who've been lured by the siren song of selling an inherently worthless item -- yet find themselves standing with a naked short-option position -- are best told after sufficient time and whiskey allow the wounds to heal.

Of course, simply paying to own options has drawbacks, too. Sure, option ownership provides limited risk, but it isn't easy to watch your money drip away while the clock ticks and you're hoping the stock moves enough before time expires to yield a profit. ...