|
Direction |
Bearish |
|
Strategy Type |
Capital Gain |
|
Legs |
Buy 1 ITM Put |
| |
Sell 2 OTM Puts |
|
Max Reward |
Limited to Strike price of Long Put - Strike Price of Short Put Net Premium Received. Achieved when share price = strike price of short put. |
|
Max Risk |
Unlimited |
|
Time Horizon |
Short Term |
|
Risk Profile |
Speculative |
|
|
|
Payoff Diagram
Insert Image Here
Description
The Ratio Put Spread has a limited upside reward and an unlimited downside risk. Loss occurs when the underlying stock price falls dramatically beyond the sold put strike. If the trade can be placed for a credit, there may be an upside reward.
Steps Involved
Buy 1 ITM Put
Sell 2 OTM Puts
Rational
Trader expects a small move to the downside, doesn't expect the stock to fall dramatically and doesn't want to take the risk of losing if the stock rallies.