Put Ratio Backspread
Outlook: Bearish
Ratio spreads
Short 1 put + long 2 puts lower. Defined max loss in the middle, unlimited downside profit.
Max profit
Unbounded below the lower breakeven (the second long put captures the crash).
Max loss
(Short strike - long strike) - credit, in the middle of the structure.
Breakeven
Two breakevens, one each side of the long strikes.
Legs
Long
2×
put
ATM −10
Short
1×
put
ATM
Structure
Short 1 higher-strike put + long 2 lower-strike puts, same expiration. Net credit at entry.
When to use
Expecting a bearish capitulation move. Defined risk if the move never comes.
Example
SPY at $450. Short 1x 450 put $6, long 2x 440 puts $3 each. Credit $0. Max profit unbounded below $430; max loss $10 between $430 and $450.
Notes
- Expensive sustained range; the trade needs the move to come.
Continue in the app
Build it in the simulator
Open this structure in the app, adjust spot, IV, and DTE, and watch the payoff and Greeks move.