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Published On: Thu, Apr 4th, 2013

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.

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About the Author

- Marcus Holland has been trading the financial markets since 2007 with a particular focus on soft commodities. He graduated in 2004 from the University of Plymouth with a BA (Hons) in Business and Finance.

 

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