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Ratio Put Spread
bearishRatio Put Spread is Neutral to Mildly bearish Strategy. In this we expect stock to fall gradually near the lower strike Put but not much below it.
Example:
| Instrument | Qty | Price |
|---|---|---|
| BUY NIFTY 30-Jun-26 24100 PE | 65 | 108.2 |
| SELL NIFTY 30-Jun-26 22600 PE | 130 | 1.85 |
When To Execute?
When you expect decrease in volatility with stock price remaining range bound.
Trade
Buy 1 lot ATM Puts and Sell 2 lots OTM Puts with same expiration date
Advantages
Net credit received acts as a cushion for fast downside movement in stock. Profitable when stock remains range bound between two strikes as it has higher theta gain
Disadvantages
Uncapped risk if stock falls below lower BEP. Managing the trade if stock falls too fast too early. Comparatively complicated trade for intermediate trader.
Maximum Profit
Maximum Profit is limited to the difference between the strikes plus( the net credit received) or minus( net debit paid) all multiplied by net long contracts.
Maximum Loss
Maximum Loss is unlimited below lower breakeven point as you are short in more option then being long.