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Advanced Options · ADV-11b · Advanced

Put ratio spread

How does put ratio spread express a a limited decline with extra downside risk view?

One concept per page · original written lesson · 549 prose words · authored, not installed or production-approved

What you will learn and prerequisites

Read first: Read a contract and its premium, Rights, obligations and expiration, Defined payoff risk is not margin, Read the whole multi-leg ticket

A put ratio buys one higher-strike put and sells two lower-strike puts. It can like a measured decline and dislike a crash. The extra short put is the exposure hidden by treating every spread as defined risk.

Construction: read every leg

Credit is 20. At 95 the position earns 520. Below 95, two liabilities grow faster than one long right. Lower breakeven is 89.80. Loss is finite at zero stock price but large relative to the tiny credit.

Read the ticket before the graph

BUY means you own an option right; SELL means you accept a short-option obligation. Positive quantities are long and negative quantities are short in the calculation. Check quantity, call/put, strike, multiplier and expiry before netting premium.

All legs in this example share November 20, 2026 expiration. The entry observation is October 6, 2026, with fictional QLT at 100. These are independent illustrative premiums, not a current option chain or executable quotes. The terminal diagram assumes every leg and any shares are resolved at one common settlement price.

Before expiry: time and volatility

Below the short strikes, net Delta can become positive, so more downside hurts. Gamma and Vega depend on the signed book. A correct bearish market call is not enough if the actual decline reaches the wrong payoff region.

Manage the position deliberately

Compare a bear-put vertical for a measured target and a backspread for crash convexity. Adding more short puts to rescue a ratio increases obligations. Prepare for the share count that assignment could create.

Fictional teaching ticket · no order submission

Put ratio spread

QLT • reference spot $100 • independent illustrative prices • quote date 2026-10-06

Read action, quantity, type, strike, expiry, premium and multiplier before the payoff
ActionQtyTypeStrikeExpiryPremium/unitMultiplier
BUY1Put1002026-11-204.2100
SELL2Put952026-11-202.2100
Opening option cash (+received / −paid)20 USD
Entry option fees in cost variant1.95 USD
Shares included0
Joint-terminal results—not a guarantee of interim cash requirements
MeasureBefore costsAfter stated entry fees
Maximum terminal profit520518.05
Maximum terminal loss magnitude8,9808,981.95
Breakeven settlement price(s)89.889.8195

This is a mathematical expiry experiment using the displayed legs, not an executable quote. The slider range is not a risk limit.

$0.65 per option contract on entry only. No exit, assignment, financing or tax costs modeled.

Independent fictional premiums, not one simultaneous arbitrage-consistent chain. All legs realized simultaneously at intrinsic at the same expiry; terminal calculations do not model American early exercise, temporary unhedged positions, forced liquidation or live liquidity. Displayed chart domain is not a tail-risk cap.

From opening cash to a settlement result

Read the opening instructions: buy 1 100 put at 4.20; sell 2 95 put at 2.20. Option opening cash is $20.00 received as a credit. A received credit is not earned profit while the obligation remains open.

Set the common settlement price to 70.00. Calls have intrinsic value max(S−K,0); puts have max(K−S,0). Subtract the opening premium from each intrinsic value, then multiply by signed quantity and the 100-unit multiplier. Shares contribute their price change from their own cost. The calculation popup shows every leg.

The combined result is $-1,980.00 before costs and $-1,981.95 after illustrative opening fees of $1.95. Exit fees, slippage, funding, dividends and taxes are not included. Opening fees are 0.65 per option contract, not a statement of any broker's pricing.

Maximum terminal profit is $520.00; maximum terminal loss magnitude is $8,980.00, before costs. Isolated zero-P/L settlement points in the model: 89.8. Move the scenario slider across each strike and explain why the slope changes there. A strike is a contract threshold, not a prediction.

This terminal model is useful for comparing risk shapes, but actual American-style assignment, share delivery, forced liquidation or a failed multi-leg exit can produce a different path. A long protective leg is not an automatic instruction that a broker must exercise it when another leg is assigned.

Open the calculation without leaving this lesson

Calculate this exact ticket

Same-page calculation. Closing restores the lesson position and originating control.

P/L = Σ[q × multiplier × (intrinsic − opening premium)] + shares × (S−share entry) − costs

Intrinsic is nonnegative before the signed quantity is applied. This is a fictional terminal calculation.

  1. +1 × 100 × (30.00 − 4.20) = $2,580.00: 100 put.
  2. -2 × 100 × (25.00 − 2.20) = $-4,560.00: 95 put.
  3. Opening fees: 1.95.
Before costs $-1,980.00; after entry fees only $-1,981.95.

Maximum risk and breakevens

Same-page calculation. Closing restores the lesson position and originating control.

Evaluate S=0, all strikes and the final tail slope; solve P/L=0 on each linear segment.

Same-expiry payoffs are piecewise linear. A finite chart range cannot prove a tail is bounded.

  1. Maximum terminal profit is $520.00; maximum terminal loss magnitude is $8,980.00, before costs.
  2. Breakeven points: 89.8.
  3. Costs shift net P/L downward without moving the strikes.
Maximum terminal profit is $520.00; maximum terminal loss magnitude is $8,980.00, before costs.

The whole ticket at common expiry

Vertical: P/L per complete ticket (USD)
Horizontal: Underlying settlement price (USD)

The whole ticket at common expirySolid combined curve is before fees; the second includes only the stated entry fees. Individual-leg lines explain construction. This is terminal intrinsic P/L, not current option value. Price can move outside the displayed range. The complete numerical data are available below.-1,117.13-762.665-408.205-53.7449300.715655.176808794101108115
1. Combined terminal P/L before fees2. Combined terminal P/L after entry fees
Solid combined curve is before fees; the second includes only the stated entry fees. Individual-leg lines explain construction. This is terminal intrinsic P/L, not current option value. Price can move outside the displayed range.
See the individual legs behind the combined curveThe whole ticket at common expirySolid combined curve is before fees; the second includes only the stated entry fees. Individual-leg lines explain construction. This is terminal intrinsic P/L, not current option value. Price can move outside the displayed range. The complete numerical data are available below.-2,932.6-1,955.56-978.52-1.48975.561,952.6808794101108115
1. Combined terminal P/L before fees2. Combined terminal P/L after entry fees3. Leg 1: BUY 1 100 put4. Leg 2: SELL 2 95 put
Read the graph as a data table
Complete graph data; original fictional observations or model calculations
Underlying settlement price (USD)Combined terminal P/L before feesCombined terminal P/L after entry feesLeg 1: BUY 1 100 putLeg 2: SELL 2 95 put
80-980-981.951,580-2,560
80.4375-936.25-938.21,536.25-2,472.5
80.875-892.5-894.451,492.5-2,385
81.3125-848.75-850.71,448.75-2,297.5
81.75-805-806.951,405-2,210
82.1875-761.25-763.21,361.25-2,122.5
82.625-717.5-719.451,317.5-2,035
83.0625-673.75-675.71,273.75-1,947.5
83.5-630-631.951,230-1,860
83.9375-586.25-588.21,186.25-1,772.5
84.375-542.5-544.451,142.5-1,685
84.8125-498.75-500.71,098.75-1,597.5
85.25-455-456.951,055-1,510
85.6875-411.25-413.21,011.25-1,422.5
86.125-367.5-369.45967.5-1,335
86.5625-323.75-325.7923.75-1,247.5
87-280-281.95880-1,160
87.4375-236.25-238.2836.25-1,072.5
87.875-192.5-194.45792.5-985
88.3125-148.75-150.7748.75-897.5
88.75-105-106.95705-810
89.1875-61.25-63.2661.25-722.5
89.625-17.5-19.45617.5-635
89.8-3.41061e-13-1.95600-600
90.062526.2524.3573.75-547.5
90.57068.05530-460
90.9375113.75111.8486.25-372.5
91.375157.5155.55442.5-285
91.8125201.25199.3398.75-197.5
92.25245243.05355-110
92.6875288.75286.8311.25-22.5
93.125332.5330.55267.565
93.5625376.25374.3223.75152.5
94420418.05180240
94.4375463.75461.8136.25327.5
94.875507.5505.5592.5415
95520518.0580440
95.3125488.75486.848.75440
95.75445443.055440
96.1875401.25399.3-38.75440
96.625357.5355.55-82.5440
97.0625313.75311.8-126.25440
97.5270268.05-170440
97.9375226.25224.3-213.75440
98.375182.5180.55-257.5440
98.8125138.75136.8-301.25440
99.259593.05-345440
99.687551.2549.3-388.75440
1002018.05-420440
100.1252018.05-420440
100.5622018.05-420440
1012018.05-420440
101.4382018.05-420440
101.8752018.05-420440
102.3122018.05-420440
102.752018.05-420440
103.1882018.05-420440
103.6252018.05-420440
104.0622018.05-420440
104.52018.05-420440
104.9382018.05-420440
105.3752018.05-420440
105.8122018.05-420440
106.252018.05-420440
106.6882018.05-420440
107.1252018.05-420440
107.5622018.05-420440
1082018.05-420440
108.4382018.05-420440
108.8752018.05-420440
109.3122018.05-420440
109.752018.05-420440
110.1882018.05-420440
110.6252018.05-420440
111.0622018.05-420440
111.52018.05-420440
111.9382018.05-420440
112.3752018.05-420440
112.8122018.05-420440
113.252018.05-420440
113.6882018.05-420440
114.1252018.05-420440
114.5622018.05-420440
1152018.05-420440

The failure case

A crash to 70 produces a loss despite the bearish forecast. Doubling short quantity was a risk decision, not free financing.

Check your understanding

Try the question before revealing its answer. These are reading checks, not trading certification or a site completion record.

What is whole-position terminal P/L at QLT 70.00, before costs?

Reveal the worked answer

$-1,980.00

Use all signed legs, not just the winning leg. The popup and graph use the same ticket.

Critical risk question

Does a terminal loss bound guarantee every early-assignment or liquidation outcome?

Reveal the worked answer

No.

It describes the specified common-settlement payoff. Product rules, stock delivery, capital and execution still matter.

Takeaway

Explain the intended a limited decline with extra downside risk exposure, each leg's obligation and the adverse price region before using the strategy name.

Sources, assumptions and downloadable script

External references support definitions and conventions. Worked scenarios and prose are original. No current quotes or dealer inventory are claimed.

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