Build a Put Ratio Backspread Strategy

What is a put ratio backspread?

BearishNearly Unlimited ProfitLimited Loss

The opposite of a call ratio backspread. This is an extremely bearish strategy that gives great profits when the stock makes a big downwords move, and a loss if it only moves a bit. If established for a net credit and the stock goes up, you can actually still make a small amount.

Time is generally harmful to this strategy, and increasing volatility is helpful.

ABProfitLossStock Price
  • Buy two puts at strike A
  • Sell a put at strike B