We show that the high contrast property of vertical cavity asymmetric Fabry–Perot modulators can also be obtained in a waveguide geometry. Increasing the absorption in one arm of a waveguide directional coupler causes the transmission through the other arm to decrease, go to zero, and then increase again. Thus, by adjusting the coupling length and the absorption, an infinite contrast ratio can theoretically be obtained with a low insertion loss. The waveguide geometry is not only more convenient than normal incidence for fiber‐based devices, but also provides a larger optical bandwidth. We present the design equations and provide a first order model of device operation. ©1995 American Institute of Physics.