Ratio spreads
Put ratio spread
Buy one at-the-money put, sell two further out-of-the-money puts.
Index stays in a rangeOpens for a creditComfortable managing riskLoss uncapped
How it works
The downside mirror of the call ratio spread, typically opened for a credit and doing best if the index drifts down towards the sold strike.
What it costs you when you are wrong
Unbounded below the sold strike, and index falls are faster than rallies. This is the ratio spread that hurts most often, because the move that breaks it is the same move that makes everything else in a portfolio fall too.
The position
- 1Buy the put at the money
- 2Sell 2 lots of the put 4 strikes out of the money
- Enter
- 4 trading days before expiry
- Exit
- hold to expiry
- Legs
- 2
Test it yourself
This runs against real historical market data. Nothing is uploaded, nothing is stored, and the result is not a prediction — it is what this rule would have done, on that index, in that year, with the costs shown.