What Is a Put Ratio Spread? Strategy, Payoff, Risk and NIFTY Example
Learn how a Put Ratio Spread works, how unequal option quantities change the payoff, and where the additional short put creates risk.
What Is a Put Ratio Spread?
A Put Ratio Spread uses different quantities of puts at different strikes.
A common 1×2 structure is:
All options normally have the same expiry.
The unequal quantities create an asymmetric payoff.
Basic NIFTY Structure
Suppose NIFTY is around 25,000.
A trader could use:
The exact risk profile depends on the premiums and strike distance.
Why Use a Ratio?
A normal vertical put spread uses equal quantities:
Buy 1 Put + Sell 1 Put
A ratio spread uses unequal quantities:
Buy 1 Put + Sell 2 Puts
The extra short option changes the downside risk.
NIFTY Example
Suppose:
Premium paid:
₹180
Premium received:
₹75 × 2 = ₹150
Net debit:
₹30
The actual market premiums will vary.
Payoff Above 25,000
If NIFTY expires above 25,000:
Ignoring costs, the trader loses the ₹30 debit.
Payoff Between the Strikes
Suppose NIFTY expires at 24,850.
Long 25,000 Put:
25,000 − 24,850 = 150 points
The 24,700 puts remain out of the money.
Ignoring costs:
Profit = 150 − 30 = ₹120
Payoff Below 24,700
Suppose NIFTY expires at 24,500.
Long 25,000 Put value:
25,000 − 24,500 = ₹500
Each short 24,700 Put loses:
24,700 − 24,500 = ₹200
Two short puts:
₹200 × 2 = ₹400
Net intrinsic value:
₹500 − ₹400 = ₹100
After the ₹30 debit:
₹100 − ₹30 = ₹70
If NIFTY falls much further, the extra short put creates increasing downside exposure.
The Key Risk
The additional short put is the defining risk of the conventional 1×2 structure.
This means a ratio spread should not be treated like a simple defined-risk bear put spread.
Put Ratio Spread vs Bear Put Spread
A Bear Put Spread normally uses:
A Put Ratio Spread can use:
The extra short put changes the risk substantially.
Put Ratio Spread vs Put Butterfly
A standard butterfly normally includes a lower protective long put.
A simple ratio spread may not.
That lower long option can materially change the downside risk profile.
Maximum Profit
For a standard 1×2 structure, maximum profit generally occurs around the lower short strike at expiry.
The exact amount depends on:
Always calculate the actual payoff.
Breakevens
The upper breakeven in the example is approximately:
25,000 − ₹30 = 24,970
The lower breakeven must be derived from the complete payoff because the extra short put changes the downside slope.
A payoff graph is therefore particularly useful.
Main Risks
Practical Checklist
Frequently Asked Questions
Is a Put Ratio Spread bullish or bearish?
It is generally structured to benefit from a decline toward the short strike, but the exact payoff depends on strikes, quantities and premiums.
Is downside risk limited?
Not necessarily. A 1×2 structure can have substantial downside risk.
Is it the same as a Bear Put Spread?
No. A bear put spread normally uses equal quantities.
Can it be used on NIFTY?
Yes, where suitable contracts and liquidity exist, subject to current exchange specifications.
Final Thoughts
A Put Ratio Spread shows how changing option quantities can dramatically change risk.
The strategy can create a useful payoff around a target zone, but the additional short put introduces significant downside exposure.
Always map the complete payoff before considering the trade.
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Disclaimer: This article is for educational purposes only and does not constitute financial advice. Options involve substantial risk.
This article is for educational purposes only and does not constitute financial advice. Please consult a SEBI registered investment advisor before making any investment decisions.