Put Ratio Back Spread
Sell one put and buy two lower-strike puts, often for a net credit, to profit from a sharp fall with limited middle risk.
What is a Put Ratio Back Spread?
A Put Ratio Back Spread is the bearish mirror of the call back spread. You sell one higher-strike put and buy two lower-strike puts of the same expiry, usually for a small net credit. The two long puts deliver large profits on a sharp decline, while the short put funds them. If the market rises, you keep the small credit. The maximum loss sits at the long strike if the market drifts down to it and stops at expiry.
Payoff Diagram
Profit & Loss at expiry
Per share (multiply by lot size 75). Gold dots mark breakeven points; green = profit, red = loss.
Construction
- Sell 1 ITM/ATM Put (higher strike).
- Buy 2 OTM Puts (lower strike), same expiry.
- Usually a net credit or near-zero cost.
When to Use It
Use when you expect a sharp, fast decline (a crash or breakdown) but want no loss if you are wrong and the market rises. Best when IV is low so the long puts are cheap. Puts often carry higher IV (skew), so pricing matters.
The Greeks
Long Gamma and long Vega, Negative Theta in the danger zone.
Risks & Considerations
- Maximum loss on a moderate fall that pins the long strike at expiry.
- Time decay and volatility crush hurt if the fall is slow.
- Volatility skew can make the long puts relatively expensive.
Worked Example (Nifty)
Illustrative trade — lot size 75
Nifty 20,000. Sell 1× 20,000 PE ₹200, buy 2× 19,700 PE ₹90 (₹180). Net credit ₹20. Above 20,000 you keep ₹1,500. Worst case at 19,700: loss = (300 − 20) × 75 = ₹21,000. Below ~19,420 profits grow rapidly as both long puts run.