Options are an important derivative class which allow traders to take positions and generate profits with limited amount of risks. Traders going long on options have to pay a premium whereas those going short/ writing the option charge premium. Apart from this there are multiple option trading strategies which enable traders to further reduce their downside risk and increase the chances of profit making based on different scenarios.
The Put Ratio Back-Spread is a net premium credit strategy that involves selling put options at a higher strike price and buying a higher number of put options at a lower strike price of the same underlying stock.
Maximum returns will be received when the stock falls below the OTM strike price. The ATM/ITM short put option will expire with a negative intrinsic value fetching the trader loss while the OTM long option will expire in a big profit. The overall value will be as per the pay of matrix

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