Put Ratio Back spread option strategy
Put Ratio back spread is extremely Bearish strategy that expects high volatility in the stocks. It requires stock to plummets sharply downwards.
Payoff at expiry
Nifty, lot size 65 · Nifty future 22,650 · 6 Oct 2026Legs
| Action | Option | Strike | Lots | Qty | Premium |
|---|---|---|---|---|---|
| SELL | ATM Put | 22,650 | 1 | 65 | ₹135.68 |
| BUY | OTM Put | 22,600 | 2 | 130 | ₹111.98 |
How it works
- Sell 1 ATM put at the 22,650 strike for ₹135.68, collecting the premium.
- Buy 2 OTM puts at the 22,600 strike for ₹111.98 each, paying the premium.
- You pay a net ₹5,738 upfront for the position. Your maximum loss is ₹8,988.
Below 22,462 you profit, and profit grows as Nifty falls.
Above 22,462 you lose, up to ₹8,696.
Set-up: Sell 1/2 ATM Put and Buy 2/3 OTM Put. Net cost to establish the strategy is very low.
What happens if Nifty moves
Profit or loss at expiry| Nifty at expiry | Move | Profit / loss |
|---|---|---|
| 21,300 | −6% | +₹75,512 |
| 21,950 | −3% | +₹33,262 |
| 22,400 | −1% | +₹4,012 |
| 22,650 | Unchanged | −₹5,738 |
| 22,900 | +1% | −₹5,738 |
| 23,350 | +3% | −₹5,738 |
| 24,000 | +6% | −₹5,738 |
How the Greeks affect it
When to use
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.
- 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.
Things to watch
- 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.
Put Ratio Back spread: questions
What is a Put Ratio Back spread strategy?
Put Ratio back spread is extremely Bearish strategy that expects high volatility in the stocks. It requires stock to plummets sharply downwards.
When should you use a Put Ratio Back spread?
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.
How do you set up a Put Ratio Back spread?
Sell 1/2 ATM Put and Buy 2/3 OTM Put. Net cost to establish the strategy is very low.
What is the maximum profit of a Put Ratio Back spread?
Maximum Profit is unlimited if the stock moves below lower strike Put.
What is the maximum loss of a Put Ratio Back spread?
Maximum loss is difference between the strike plus net outflow or less net inflow.
What is the breakeven of a Put Ratio Back spread?
With Nifty at 22,650, the example on this page breaks even at 22,462 at expiry.