Put Ratio Backspread
Description
Selling one at-the-money put and buying two puts further out of the money, the inverse of a put ratio spread, set up for a sharp decline rather than a pin.
Setup
- Sell one put at the money.
- Buy two puts at a lower strike, same expiry.
Context
Used when a sharp decline is considered likely, or at least worth being positioned for cheaply, while still collecting value if the underlying stays flat or rises.
Risk Profile
Maximum loss is capped and occurs near the long strike. Above the short strike, the position is flat or profitable at its net cost; below the long strike, gain grows as the underlying falls, bounded only by zero.
Pros
- Large gain potential on a sharp decline.
- Often set up for a small credit or low cost.
- Profits if the underlying stays flat or rises, not just if it falls.
Cons
- Worst case sits at a specific price in the middle, not at an extreme.
- Needs a genuinely large move to reach its full potential.
Effect of Time
Time decay generally hurts the position while the underlying sits near the long strike.
Effect of Volatility
A rise in implied volatility helps the position, since the long puts outnumber the short put.
Look-Alike Strategies
Live Structure
| Position | Right | Ratio | Strike | Expiry | Premium | Fill Price | Est. Fee |
|---|---|---|---|---|---|---|---|
| Short | Put | 1 | $84500.0000 | 24 Sep 2026 | $211.3784 | $186.0129 | $25.3654 |
| Long | Put | 2 | $84000.0000 | 24 Sep 2026 | $71.8686 | $84.5512 | $17.9671 |
Estimated Cost to Assemble
An estimate of what entering this structure right now would really cost: filling every leg by crossing the spread (the ask when buying, the bid when selling) instead of at the mid-price, plus an estimated exchange fee. Real fees and fills can differ from this estimate.
Payoff & Greeks vs. Underlying Price
The Greeks curves are a Black-Scholes model using each leg's current implied volatility, holding time to expiry fixed -- not live exchange data at every price, which only exists at the current price (dashed line).
Payoff at Expiration
This structure's value and profit/loss at expiration, at a handful of specific prices: every leg's strike, every breakeven, the current spot, and the chart's own range.
| Underlying Price | Value at Expiration | Profit / Loss | Return on Cost |
|---|---|---|---|
| $83500.0000 | $0.0000 | $67.6412 | +100.0% |
| $83567.6412 breakeven | -$67.6412 | $0.0000 | +0.0% |
| $84000.0000 | -$500.0000 | -$432.3588 | -639.2% |
| $84432.3588 breakeven | -$67.6412 | $0.0000 | +0.0% |
| $84500.0000 | $0.0000 | $67.6412 | +100.0% |
| $84551.3200 current | $0.0000 | $67.6412 | +100.0% |
| $85000.0000 | $0.0000 | $67.6412 | +100.0% |