Put Ratio Spread (Front Spread)
Description
Buying one at-the-money put and selling two puts further out of the money, financing most or all of the long put with the extra short premium.
Setup
- Buy one put at the money.
- Sell two puts at a lower strike, same expiry.
Context
Used when a moderate decline down to the short strike is expected, and the trader is willing to accept uncapped risk below it in exchange for a very low, or negative, cost of entry.
Risk Profile
Maximum gain occurs at the short strike. Below it, the extra uncovered short put creates loss that grows as the underlying falls; above the long strike, the position is flat at its net cost.
Pros
- Very low, sometimes negative, cost of entry.
- Maximum profit at the short strike can be large relative to the cost.
- Benefits from time decay on the short puts.
Cons
- Uncapped downside risk below the short strike.
- Needs active management if the underlying sells off hard.
Effect of Time
Time decay generally helps, since there are more short options than long ones.
Effect of Volatility
A rise in implied volatility generally hurts the position, since the short puts outnumber the long put.
Look-Alike Strategies
Live Structure
| Position | Right | Ratio | Strike | Expiry | Premium | Fill Price | Est. Fee |
|---|---|---|---|---|---|---|---|
| Long | Put | 1 | $84500.0000 | 24 Sep 2026 | $211.3784 | $236.7438 | $25.3654 |
| Short | Put | 2 | $84000.0000 | 24 Sep 2026 | $71.8686 | $59.1859 | $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% |