Options Glossary: R

Ratio spread

A term most commonly used to describe the purchase of an option(s), call or put, and the writing of a greater number of the same type of options that are out-of-the-money with respect to those purchased. All options involved have the same expiration date. For example, buying 5 XYZ May 60 calls and writing 6 XYZ May 65 calls. See also Ratio write.

Ratio write

An investment strategy in which stock is purchased and call options are written on a greater than one-for-one basis (more calls written than the equivalent number of shares purchased). For example, buying 500 shares of XYZ stock, and writing 6 XYZ May 60 calls. See also Ratio spread.

Realized gains and losses

The net amount received or paid when a closing transaction is made and matched with an opening transaction.

Resistance

A term used in technical analysis to describe a price area at which rising prices are expected to stop or meet increased selling activity. This analysis is based on historic price behavior of the stock.

Reversal / Reverse conversion

An investment strategy used mostly by professional option traders in which a short put and long call with the same strike price and expiration combine with short stock to lock in a nearly riskless profit. For example, selling short 100 shares of XYZ stock, buying 1 XYZ May 60 call, and writing 1 XYZ May 60 put at favorable prices. The process of executing these three-sided trades is sometimes called reversal arbitrage. See also Conversion.

Rho

A measure of the expected change in an option's theoretical value for a 1% change in interest rates.

Rolling

A trading action in which the trader simultaneously closes an open option position and creates a new option position at a different strike price, different expiration, or both. Variations of this include rolling up, rolling down, rolling out and diagonal rolling.

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