Put Ratio Spread

A put ratio spread is a limited profitability, unlimited risk strategy that is often undertaken when the investor believes that the stock will have low volatility.

A put ratio spread means buying a number of options at one strike price, and then selling a greater number of options at a lower strike price. For instance, a 3:1 put ratio spread would involve buying a number of put options at one price, then selling three times the number of put options at a lower strike price. This strategy has an unlimited potential for risk if the underlying asset price drops below the breakeven point upon expiration of the option.