Chapter 06 · Section 6.1
Mechanics of a Ratio Put Spread
To put on a ratio put spread, you:
a) sell one of the lower strike and buy two or more of the higher strike.
b) buy two or more of the lower strike and sell one of the higher strike.
c) buy one of the lower strike and sell two or more of the higher strike.
d) sell two or more of the lower strike and buy one of the higher strike.
Recall the profit/loss profile. The profit peaks up in the center - this is from the short puts.
Combining that with the limited loss on the upside and unlimited loss on the downside, the option that you receive the premium from must be the lower of the two exercise prices.