I've been looking at call spreads and put spreads and observed some vastly different risk/reward ratios even when the same spread width is used.
Can someone please explain these differences?
All examples use symbol ACB and I won't consider commissions.
SELL JAN 15 '21 $4 PUT
BUY JAN 15 '21 $3 PUT
Max profit: $49 (initial credit)
Max loss: $51
r:r almost 1:1
SELL DEC 18 '20 $4 PUT
BUY DEC 18 '20 $3 PUT
Max profit: $31 (initial credit)
Max loss: $69
r:r nearer 1:2
SELL DEC 18 '23 $4 PUT
BUY DEC 18 '23 $3 PUT
Max profit: $81 (initial credit)
Max loss: $19
r:r nearer 4:1
So we see that the r:r ratios differ dramatically despite using the same strikes.
There seems to be a simple pattern here that the further our the options are the higher the r:r, which can make sense from a time premium point of view, but this equally confuses me when the put I'm buying should be costing me roughly the same time (in proportion) to the time premium I'm gaining as credit from the sell.