Skip to content

Ratio Put Spread-Neutral Strategy

Options Trading for Beginners


Put ratio spread is a multi-leg, neutral strategy with undefined risk and limited profit potential that involves buying in-the-money put options and selling more out-of-the-money put options of the same underlying and expiry but at a different strike price. If the strategy is initiated for a credit, the trader can earn in two ways: the premium received while executing the strategy and the width of the spread between the long and short put options. If the strategy is initiated for a net debit, the trader will only profit when the underlying prices fall to the short put option and the trader gains from the spread between the long and short put options.


Max loss can be seen if the price of the underlying asset takes a sudden nose dive below the breakeven point. The loss would be limited yet significant till the security price becomes worthless.


Max gain would be realized if the underling price at expiry fall to short put option strike price. The short puts will expire worthless and gains would be made from difference between long and short strike put.


Buy 1 ITM Put Option

Sell 2O TM Put Options

Option Type Expiry Date Strike Price LTP Action No. Of Lots
PUT 27/04/2023 17950.0 164.5 Buy 1
PUT 27/04/2023 17800.0 54.55 Sell 2


Market Expiry Payoff 1 Payoff 2 Net Premium Option PayOff At Expiry
17400.0 550.0 -800.0 -55.4 -305.4
17450.0 500.0 -700.0 -55.4 -255.4
17500.0 450.0 -600.0 -55.4 -205.4
17550.0 400.0 -500.0 -55.4 -155.4
17600.0 350.0 -400.0 -55.4 -105.4
17650.0 300.0 -300.0 -55.4 -55.4
17700.0 250.0 -200.0 -55.4 -5.4
17750.0 200.0 -100.0 -55.4 44.6
17800.0 150.0 0.0 -55.4 94.6
17850.0 100.0 0.0 -55.4 44.6
17900.0 50.0 0.0 -55.4 -5.4
17950.0 0.0 0.0 -55.4 -55.4
18000.0 0.0 0.0 -55.4 -55.4
18050.0 0.0 0.0 -55.4 -55.4
18100.0 0.0 0.0 -55.4 -55.4
18150.0 0.0 0.0 -55.4 -55.4
18200.0 0.0 0.0 -55.4 -55.4


Payoff Chart



Nifty is trading at 17850 levels and the trader holds a neutral view on nifty with low volatility in the index. He implemented ratio put spread which involved buying 17950 put by paying the premium of Rs 165 and selling 2 17800 puts at a premium of 55 each. Net funds outflow initially came out to be Rs. 2750 (165 – (55*2)) * 50

    Open FREE Acccount with us


    Scenario 1:

    If the market moved against the trader assumption, then the trade will result in a loss. one short position will be compensated by the long position but another will result in a loss as sown in the chart above.

    Scenario 2:

    If the market moves till the short put option, the trade will result in a gain, as the long position will be in positive and short position will expire worthless.

    Scenario 3:

    Last scenario being, if the market rises on a positive news and crosses above the long put option. All the option will expire worthless and the trader will lose the net premium paid and hence end up in loss.

    No comment yet, add your voice below!

    Add a Comment

    Your email address will not be published.

    Related Posts

    Earning a profit in the bullish market is easier, as you can buy any stock...
    Derivatives or Future & Options (F&O) segment accounts major volume of trades in the stock...
    Explanation Reverse iron condors are market neutral strategy with no directional bias. For this strategy...