Options Strategies
Ratio Put Spread
Strategies Ratio Put Spread
Component Buy 1 put with higher strike price/level and sell 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 between the upper & lower break-even point
  • Limited to strike price/level difference minus the net premium paid
Maximum Loss
  • When the stock price/index level is below the lower break-even point, substantial & equals to the lower break-even point minus stock price/index level
  • When the stock price/index level is above the upper break-even point, limited to the net premium paid
Time Value Impact Positive
  • The lower break-even point equals to lower strike price/level minus the strike price/level difference plus the net premium paid
  • The upper break-even point equals to the higher strike price/level minus net premium paid
Remarks Compared with a Short Straddle, a Ratio Put Spread (with net premium paid) has substantial loss on the downside but limited loss on the upside.
  Net Position +1 Jan 200 Put -2 Jan 180 Put

Component Buy 1 ABC Jan $200 Put, pay $35 and sell 2 ABC Jan $180 Put each at $16, totally receive $32
Net Premium Pay $35-$32=$3
  • Lower: $180-$20+$3=$163
  • Upper: $200-$3=$197
Profit when Stock price is between $163 & $197
Potential Profit ($200-$180)-$3=$17
Potential Loss
  • When the stock price is below $163, $163 - stock price
  • When the stock price is above $197, limited to $3
Time Value Impact Positive