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Put Ratio Back spread
bearishPut Ratio back spread is extremely Bearish strategy that expects high volatility in the stocks. It requires stock to plummets sharply downwards
Example:
| Instrument | Qty | Price |
|---|---|---|
| SELL NIFTY 30-Jun-26 24100 PE | 65 | 108.2 |
| BUY NIFTY 30-Jun-26 22600 PE | 130 | 1.85 |
When To Execute?
Put Ratio Back spread is an extremely bearish strategy that is form with little or no net cost thereby reducing overall risk . It requires aggressive downward move in the stock
Trade
Sell 1/2 ATM Put and Buy 2/3 OTM Put. Net cost to establish the strategy is very low
Advantages
1.Reduced cost of formulating the strategy 2.In scenario where implied volatility of Put is rising, it provides limited risk 3.Generates higher return in scenario where stock falls exponentially
Disadvantages
1.Loss could be higher if the stock doesn�t give desired downward movement. 2. Not meant for an intermediate trader 2. Time decay could be harmful to the strategy as we are net long 2. Strike selection becomes key to success
Maximum Profit
Maximum Profit is unlimited if the stock moves below lower strike Put.
Maximum Loss
Maximum loss is difference between the strike plus net outflow or less net inflow