Skip to content

Ratio Put Write-Neutral Strategy

Options Trading for Beginners

Explanation

Taking base assumption on implementing this strategy is of little/no volatility, the trader capitalizes on the limited profit that is in the form of premium received. Ratio put write is a neutral options trading strategy. The options strategy is constructed with ownership of the underlying security or going long on future contract and simultaneously selling more puts options than underlying asset owned.

Risk:

If the trader base assumption is voided and underlying crashed to the downside. In such case potential losses could be limitless as there are a greater number of uncovered puts shorted.

Reward:

Maximum profit is made when the underlying security price at expiry is at the strike price of the options sold. At that price, both the short puts will expire worthless while the long position in underlying/futures strike give no profit/loss.

Construction

43703.6 AS ON 17/05/2023 15:14:59

Sell 1NIFTY Future

Sell 2 NIFTY ATM Puts

Option Type Expiry Date Strike Price LTP Action No. Of Lots
FUTURES 25-05-2023 -NA- 43567.1 Sell 1
PUT 25-05-2023 43700 435 Sell 2

 

Market Expiry Payoff 1 Payoff 2 Net Premium Option PayOff At Expiry
42900.0 667.1 -1600.0 870.0 -62.9
43000.0 567.1 -1400.0 870.0 37.1
43100.0 467.1 -1200.0 870.0 137.1
43200.0 367.1 -1000.0 870.0 237.1
43300.0 267.1 -800.0 870.0 337.1
43400.0 167.1 -600.0 870.0 437.1
43500.0 67.1 -400.0 870.0 537.1
43600.0 -32.9 -200.0 870.0 637.1
43700.0 -132.9 0.0 870.0 737.1
43800.0 -232.9 0.0 870.0 637.1
43900.0 -332.9 0.0 870.0 537.1
44000.0 -432.9 0.0 870.0 437.1
44100.0 -532.9 0.0 870.0 337.1
44200.0 -632.9 0.0 870.0 237.1
44300.0 -732.9 0.0 870.0 137.1
44400.0 -832.9 0.0 870.0 37.1
44500.0 -932.9 0.0 870.0 -62.9

 

Options Payoff Chart

 

Example

The bank nifty is trading at 43600 levels and traders think the index will show very minor volatility. He took chances and implemented Ratio put write strategy where he sold future contract and also shorted ATM puts and received premium. Net pay in initially comes at Rs. 21750 (435*2) * 25

    Open FREE Acccount with us

     

    Scenario 1:

    Thinking of worst-case scenario and the worst happened, the market fell by a margin by the time of expiry to 43000. The trader will make profit n his short future position but the short put option contract will result in a loss as shown in the table below.

    Scenario 2:

    If the market expires at the short put option, the trader will gain from all position as the option will expire worthless and future position can be closed lower as sown in the table above.

    Scenario 3:

    If the market turns bullish, the trader will keep the premium received on the option sold and the future contract will result in the loss.

    No comment yet, add your voice below!


    Add a Comment

    Your email address will not be published.

    Related Posts

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