Put Ratio Spread Strategy
Buy 1 ATM put, sell 2 OTM puts. Profit from moderate moves down with increased risk below.
What is a Put Ratio Spread?
A Put Ratio Spread buys 1 put and sells 2 lower-strike puts. Profits from moderate bearish moves. Has large risk if stock falls far below short strike. Complex strategy for experienced traders.
When to Use a Put Ratio Spread
Use when moderately bearish with a target price. Best in high IV. Requires active management and risk awareness.
Key Formulas
- Max Profit
- (Long strike - Short strike ± credit) × 100
- Max Loss
- Large (below short strike toward $0)
- Breakeven
- Short strike - (Max profit / 100)
Example Trade
Buy 1 SPY $420 Put, Sell 2 $410 Puts for $0.50 credit. Max profit $1050 at $410.
Common Mistakes to Avoid
- Crash scenarios (risk explodes)
- Not managing naked short put
- Ignoring dividends/ex-dates
- No defined stop loss
Related Strategies
Frequently Asked Questions
What is a Put Ratio Spread?
A Put Ratio Spread buys 1 put and sells 2 lower-strike puts. Profits from moderate bearish moves. Has large risk if stock falls far below short strike. Complex strategy for experienced traders.
When should I use a Put Ratio Spread?
Use when moderately bearish with a target price. Best in high IV. Requires active management and risk awareness.
What is the maximum profit and loss for a Put Ratio Spread?
Max profit: (Long strike - Short strike ± credit) × 100. Max loss: Large (below short strike toward $0).
What is the breakeven price for a Put Ratio Spread?
Breakeven: Short strike - (Max profit / 100). Example trade: Buy 1 SPY $420 Put, Sell 2 $410 Puts for $0.50 credit. Max profit $1050 at $410.
What are common mistakes when trading a Put Ratio Spread?
Common mistakes include: Crash scenarios (risk explodes); Not managing naked short put; Ignoring dividends/ex-dates; No defined stop loss.
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