Chapter 06 · Section 6.1

P/L Profile

How would the profit/loss profile of a put ratio backspread differ from a call ratio backspread?

a) Unlimited profit would be realized on the downside.
Yes. The two long puts offset the short put and result in practically unlimited profit on the bearish side of the market. The cost of the long puts is offset by the premium received for the (more expensive) short put, resulting in a net premium received. Continue
b) Limited profit would be realized on the downside.
c) The profit/loss profiles would not differ.