Chapter 06 · Section 6.1

The Put Ratio Backspread

1. 1Position→
2. 2P/L Profile→
3. 3Mechanics of a Put Ratio Backspread→
4. 4Market Bias→
5. 5Ratio Backspread-Bearish→
6. 6Breakeven Point→
7. 7Volatile Market Positions→

In combination positions (e.g. bull spreads, butterflys, ratio spreads), one can use calls or puts to achieve similar, if not identical, profit profiles.

Like its call counterpart, the put ratio backspread combines options to create a spread which has limited loss potential and a mixed profit potential.

It is created by combining long and short puts in a ratio of 2:1 or 3:1. In a 3:1 spread, you would buy three puts at a low exercise price and write one put at a high exercise price. While you may, of course, extend this position out to six long and two short or nine long and three short, it is important that you respect the (in this case) 3:1 ratio in order to maintain the put ratio backspread profit/loss profile.