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
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.
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