---
description: "A strongly bearish volatility strategy selling fewer near-ATM puts at K1 and buying more OTM puts at K2 < K1, with unlimited profit on a sharp decline and limited loss in between."
tags: [options, volatility, bearish, backspread]
---

# Put Ratio Backspread

**Section**: 2.37 | **Asset Class**: Options | **Type**: Volatility

## Overview
The put ratio backspread consists of a short position in N_S close to ATM put options with strike K1, and a long position in N_L OTM put options with strike K2 (K2 < K1), where N_L > N_S. Typically N_L = 2, N_S = 1 or N_L = 3, N_S = 2. The trader's outlook is strongly bearish. This is a capital gain strategy.

## Construction
- Sell N_S put options at strike K1 (near ATM)
- Buy N_L put options at strike K2 (OTM lower, K2 < K1, N_L > N_S), same expiry

Net debit or credit H

## Payoff Profile
f_T = N_L × (K2 - S_T)+ - N_S × (K1 - S_T)+ - H

- Upper breakeven (if H < 0): S*_up = K1 + H/N_S
- Lower breakeven: S*_down = (N_L × K2 - N_S × K1 - H) / (N_L - N_S)
- Max profit: P_max = N_L × K2 - N_S × K1 - H  (if stock goes to zero)
- Max loss: L_max = N_S × (K1 - K2) + H  (in the zone near K2 where long puts are OTM but short puts are ITM)

## Key Conditions / Signals
- Strongly bearish; expects a significant decline below K2
- Ideally entered as a credit (H < 0) so that profit is also made if stock stays above K1
- Loss zone is bounded between the two breakevens

## Notes
The difference between put ratio backspread and ratio put spread: here N_L > N_S (more longs than shorts). The maximum loss occurs near K2 at expiry. If H < 0, the position profits if the stock stays well above K1 or collapses well below the lower breakeven.