Put Ratio Spread Options Strategy Guide
By OptionClaws, VirWare LLC · Updated 2026-08-23
A put ratio spread buys one put and sells two puts at a lower strike in the same expiration, the 1x2. Put skew makes the lower strikes relatively rich, so the two short puts usually more than pay for the long one and the trade is opened for a credit. It pays its maximum if the stock settles at the short strike, keeps the credit if the stock rises or stays put, and loses like long stock below the lower breakeven because the second short put is uncovered. Traders use it to buy a dip at a discount, with the understanding that a crash means owning 200 shares.
Key takeaways
- Buy one put and sell two puts at a lower strike, same expiration, usually for a credit
- Max profit at the short strike is the width plus the credit
- Below the lower breakeven the uncovered short put loses like 100 shares of stock
- Wins on a drift, a modest dip, or a rally; loses on a crash
When it makes sense
- You expect a modest pullback to a support level, or no move, but not a crash
- Put skew is steep, so the lower strikes are paying well relative to the near strike
- You would be comfortable owning the stock at the short strike, in double size
- You have the margin and approval level for an uncovered short put
How it works
Buy one put at strike B (near the money) and sell two puts at strike A below it, same expiration. The net credit is kept if the stock finishes above B. At expiration: above B all puts expire worthless; at A the long put is worth the width and the shorts are worthless, the maximum profit of width plus credit; below A each dollar of decline costs one dollar, since two short puts outrun one long. Lower breakeven is A minus the width minus the credit. There is no upper breakeven when opened for a credit. Margin is the naked requirement on the uncovered short put.
Risk and reward
Maximum profit: (width plus credit) times 100 at A exactly. Maximum loss: (A minus width minus credit) times 100, if the stock goes to zero; large, and economically the same as owning 100 shares from the lower breakeven down. Above B the result is the credit kept. Because the losing scenario is a crash, and crashes come with volatility spikes that inflate the short puts, the position can show a large paper loss before expiration even when the stock is still above the breakeven. Size it like a cash-secured put on the uncovered leg, not like a spread.
Greeks and volatility
Delta is slightly negative at entry and turns positive as the stock falls through A, where the two short puts dominate. Gamma is positive near B and strongly negative at and below A. Theta is positive while the stock is above A. Vega is negative, and implied volatility rises when stocks fall, so a sharp decline hurts the position through both price and volatility at the same time. That combination is why put ratio spreads need an exit plan before the stock reaches A.
Managing the trade
If the stock drops toward A, either buy back one short put to leave a plain bear put spread, or buy a further out-of-the-money put to cap the tail as a broken-wing butterfly. Assignment on both short puts means buying 200 shares at A; the long B put covers 100 of them, so you are left net long 100 shares on margin. Early assignment is uncommon unless the puts are deep in the money with little time value, but plan for it. Take profits with the stock near A and a week or two left; the full payoff exists only at expiration.
Worked example
Stock at $100. Buy the 35-day $95 put for $2.80 and sell two $90 puts for $1.60 each ($3.20), a net credit of $0.40 ($40). Maximum profit at $90 is ($5.00 plus $0.40) times 100 = $540. Lower breakeven is $84.60. If the stock finishes above $95 you keep $40. At $92 the long put is worth $3.00 and the shorts are worthless, a $340 profit. At $80 the long put is worth $15.00 and the two shorts cost $20.00: a $460 loss. At $75 you lose $960, growing by $100 per dollar lower.
What to screen for
Screen put ratio spreads by net credit, the distance from the stock to the lower breakeven in ATRs, probability of profit, and return on margin. Exclude earnings inside the window, prefer large caps with steep put skew, and require open interest at both strikes. The scanner's ATR-move-target column shows the result if the stock makes a typical down move, which is the scenario the trade is designed for.
Scan the market for put ratio spreads
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Frequently asked questions
- What is the maximum loss on a put ratio spread?
- The lower breakeven times 100, if the stock goes to zero: the uncovered short put loses like 100 shares from the breakeven down. A 95/90 1x2 opened for $0.40 can lose up to $8,460 per spread.
- What is the breakeven of a 1x2 put ratio spread?
- The short strike minus the spread width minus the net credit. A 95/90 1x2 sold for a $0.40 credit breaks even at $84.60. Opened for a credit, there is no upside breakeven.
- What happens if both short puts are assigned?
- You buy 200 shares at the short strike. The long put lets you sell 100 of them at its strike, leaving you long 100 shares on margin at an effective cost of the lower breakeven.
- Is a put ratio spread bullish or bearish?
- Neutral to mildly bearish. It earns the most on a controlled dip to the short strike, keeps the credit if the stock rises or drifts, and loses on a crash.
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Last updated 2026-08-23. Educational content, not investment advice. Options involve substantial risk and are not suitable for every investor. See our Terms of Service.