Options Strategies
Ratio Put Back Spread
Strategies Ratio Put Back Spread
Component Sell 1 put with higher strike price/level and buy 2 put with lower strike price/level
1. Result in net premium received
2. Result in net premium paid
When there is net premium paid:
Potential Profit When the stock price/index level is below the break-even point, substantial & equals to the break-even point minus the stock price/index level
Maximum Loss
  • When the stock price/index level is above the break-even point
  • Equals to the strike price/level difference plus net premium paid. Maximum loss exists when the stock price/index level is equal to lower strike price/level
Time Value Impact Negative
  • Only one break-even point exists
  • Equals to lower strike price/level minus strike price/level difference minus net premium paid
Remarks Compared with long straddle, a Ratio Put Back Spread (with net premium paid) has substantial profit on the downside but limited loss on the upside.
  Net Position -1 AUG 200 Put +2 Aug 180 Put

Component Sell 1 ABC Aug $200 Put, receive $30 and buy 2 ABC Aug $180 Put each at $20, totally pay $40
Net Premium Pay $40-$30=$10
Break-even $180-($200-$180)-$10=$150
Profit when Stock price is below $150
Potential Profit $150 - stock price
Potential Loss ($200-$180)+$10=$30
Time Value Impact Negative