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 received:
Potential Profit
  • When the stock price/index level is above the break-even point
  • Limited to strike price/level difference plus the net premium received
Maximum Loss
  • When the stock price/index level is below the break-even point
  • Substantial, equals to break-even point minus stock price/level
Time Value Impact Positive
Break-even
  • Only one break-even point exists
  • Equals to lower strike price/level minus the strike price/level difference minus the net premium received
Remarks Compared with a Short Straddle, a Ratio Put Spread (with net premium received) has substantial loss on the downside but limited profit on the upside.
Example
  Net Position +1 Jan 200 Put -2 Jan 180 Call

Component Buy 1 ABC Jan $200 Put, pay $30 and sell 2 ABC Jan $180 Call each at $20, totally receive $40
Net Premium Receive $40-$30=$10
Break-even $180-$20-$10=$150
Profit when Stock price is above $150
Potential Profit ($200-$180)+$10=$30
Potential Loss $150 - Stock price
Time Value Impact Positive

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