Cristiano Ronaldo, Gareth Bale and Karim Benzema all scored twice as the Germans were taken apart on their own ground in Gelsenkirchen in the first leg of their last-16 encounter.
As a result, Bayern Munich have been eased slightly to 2/1 by Sky Bet to retain their crown while second favourites Barcelona can be backed currently at 7/2.
Sky Bet football trader Joe Petyt said: "Real Madrid were always expected to progress against Schalke but the manner of their victory was extremely impressive.
"They've shortened to 4/1 to win the competition and are sure to have plenty of supporters at that price in the next few weeks."
Chelsea went 1-0 up early on in Turkey against Galatasaray but the latter fought back to force a 1-1 draw and Jose Mourinho's men are 14/1 chances at Sky Bet.
Chelsea are priced up by Sky Bet at 1/7 to progress furthest of the English teams with Manchester United 4/1, Manchester City 40/1 and Arsenal 50s.
Petyt added: "Chelsea will be pleased with a score draw in the first leg and the result hasn't seen any change in their price to win the competition.
"But they're slightly shorter to qualify for the next round now at 1/6 than they were before the game."