A put ratio spread buys one put at a higher strike and sells two (or more) puts at a lower strike, all with the same expiration. The extra short put pays for most or all of the long put, so the trade opens for a small debit or a credit. It is a moderately bearish strategy: maximum profit comes if the stock finishes exactly at the lower strike at expiration, while a large drop below the lower strike creates losses that grow until the stock reaches zero, so the downside risk is large. Traders use it when they expect a limited decline, not a crash. This article is educational, not investment advice.
Profit and loss at expiration (1x2 example)
- Maximum profit: the distance between the strikes plus any credit received (or minus any debit paid), reached at the lower strike.
- Above the higher strike: all puts expire worthless; the result is the initial credit or debit.
- Downside breakeven: the lower strike minus the maximum profit per share.
- Below the downside breakeven: losses grow one-for-one with the stock because one short put is uncovered, up to the stock reaching zero.
Pricing the legs in Excel
With the MarketXLS Excel add-in, build each contract with =OptionSymbol(...) and price it with =QM_Bid(...) and =QM_Ask(...) to compute the net credit or debit and the breakeven. Options data is end-of-day on the Standard plan and real-time on the Advanced and Business plans. See MarketXLS templates and the options profit calculator to model the payoff.
Use the Put Ratio Spread Excel template to model the strategy.
Read the Put Ratio Spread setup and risk guide for a fuller explanation.
