Put Ratio Spread Strategy
Low-cost bearish trade — profits from a moderate drop, risky if it crashes.
What is the Put Ratio Spread Options Strategy?
A Put Ratio Spread is the bearish mirror of the Call Ratio Spread. You buy one ATM put and sell two OTM puts at a lower strike. The two puts you sell fund the one you buy — so entry is near zero or even a credit.
If the stock drops moderately to your sold strike, you make great money. But if the stock crashes far below, those two naked short puts create growing losses. It is a mildly bearish strategy best used when you expect a pullback, not a freefall.
Why is it Called "Put Ratio Spread"?
Same logic as the Call Ratio Spread. "Put" because both options are puts. "Ratio" because the bought-to-sold ratio is unequal (1:2). The ratio creates the asymmetric payoff.
How Does the Put Ratio Spread Trade Work?
- 1 Step 1 — Pick a stock you expect to pull back moderately.
- 2 Step 2 — Buy 1 put near the current price.
- 3 Step 3 — Sell 2 puts at a lower support level.
- 4 Step 4 — Entry is near zero — the 2 short puts fund the 1 long put.
- 5 Step 5 — If stock drops to your target, collect max profit. If it crashes, losses grow.
Types of Put Ratio Spread Strategies
1×2 Put Ratio Spread (Standard)
Buy 1 higher put, sell 2 lower puts. Near-zero cost. Max profit at the sold strike. Unlimited risk below.
When to Use the Put Ratio Spread Strategy?
- Mildly bearish — expect a pullback to support, not a crash
- When puts are expensive (high IV) — the sold puts generate big premium
- When there is a clear support level you expect to hold
- As a cheaper alternative to a naked long put
Profit and Loss of the Put Ratio Spread
Before looking at the chart, here is a plain-English summary of what you can make and what you can lose.
Spread width plus any credit received. At the sold put strike.
Unlimited below the lower breakeven (stock crashes toward zero). Above: loss = any debit paid.
Lower breakeven = lower strike − max profit.
Put Ratio Spread Payoff Diagram
The chart below shows how profit/loss changes with the underlying price at expiry. Green zone = profit, red zone = loss.
Put Ratio Spread Example Trade
| Action | Type | Strike | Premium |
|---|---|---|---|
| Buy | Put | ₹48,000 | -₹420 |
| Sell | Put | ₹47,000 | +₹220 × 2 = +₹440 |
BANKNIFTY dropped from ₹48,000 to ₹47,100. Long put worth ₹900, short puts worth ₹0 each. Profit: ₹920 for a trade that cost nothing.
Pros & Cons of the Put Ratio Spread
- Near-zero entry cost
- Great profit from a moderate decline
- Effective in high-IV environments
- Can enter for a credit
- Unlimited loss if stock crashes far below your shorts
- Needs active monitoring
- Complex risk profile
- Not for beginners
Put Ratio Spread Frequently Asked Questions
Quick Quiz
Answer all questions and check your score.
1 A Put Ratio Spread profits maximally when:
2 The biggest risk in a Put Ratio Spread is:
3 Put Ratio Spread vs Bear Put Spread — the key difference is:
4 Entry cost for a Put Ratio Spread is typically:
5 Put Ratio Spread is best suited for: