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Put Ratio Spread

Bearish Strategy

Use Zuviz's free options visualizer to build this strategy instantly. Buy 1 put, sell 2 (or more) lower puts. Profits on moderate decline to short strike but has risk if stock crashes.

⚡ Key Takeaways

  • Market Outlook: Moderately bearish (limited downside expected)
  • Max Profit: Occurs at short put strike
  • Max Loss: Unlimited below lower breakeven (naked puts)
  • Breakeven: Lower breakeven varies by ratio
  • Best for: Selling volatility while maintaining downside exposure
  • Greeks Impact: Negative Vega, complex Theta/Delta relationship

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Market Outlook
Moderately Bearish
Max Profit
At short strike
Max Loss
Large (if stock crashes)
Breakeven
N/A

📊 Payoff Diagram

Open in Zuviz →

🏗️ Strategy Structure

Leg Action Type Strike Qty Premium
1 Buy Put $100 1 $4.00
2 Sell Put $95 2 $2.00 each

Net Credit/Debit: (2 × $2.00) - $4.00 = $0.00 (breakeven entry)

🧮 Key Calculations

🎯 When to Use This Strategy

  • Expecting moderate decline: Stock will fall to short strike but not crash
  • Support level: Strong technical support at short strike
  • Zero cost entry: Can often structure for zero or credit

📈 Greeks Impact

Delta (Δ)

Negative - You want the stock to fall.

Theta (Θ)

Positive for short strategies (time helps), negative for long strategies.

⚖️ Pros & Cons

Pros

  • Can run for a credit
  • Profits if stock is flat or falls slightly
  • High probability

Cons

  • Significant downside risk
  • Upside risk (if debit)
  • Complexity

📝 Real-World Example

Stock: F at $12. Trade: Buy 1x $12 Put, Sell 2x $11 Put.

Risk: Substantial below break-even point in the downside.

🔗 Related Strategies

📊 Bear Put Spread

Defined risk bearish alternative

📞 Call Ratio Spread

Bullish ratio variation

Visualize This Strategy

See the payoff diagram in Zuviz.

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