---
description: "A neutral-to-bullish income strategy selling more near-ATM puts at K1 than ITM puts bought at K2 > K1, collecting premium with unlimited downside risk below the lower breakeven."
tags: [options, income, neutral, ratio-spread]
---

# Ratio Put Spread

**Section**: 2.39 | **Asset Class**: Options | **Type**: Income

## Overview
The ratio put spread consists of a short position in N_S close to ATM put options with strike K1, and a long position in N_L ITM put options with strike K2 (K2 > K1), where N_L < N_S. Typically N_L = 1, N_S = 2 or N_L = 2, N_S = 3. This is an income strategy if structured as a net credit trade. The trader's outlook is neutral to bullish.

## Construction
- Sell N_S put options at strike K1 (near ATM)
- Buy N_L put options at strike K2 (ITM, 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 = K2 - H/N_L
- Lower breakeven: S*_down = (N_S × K1 - N_L × K2 + H) / (N_S - N_L)
- Max profit: P_max = N_L × (K2 - K1) - H  (in zone [K1, K2])
- Max loss: L_max = N_S × K1 - N_L × K2 + H  (if stock goes to zero; unlimited downside)

## Key Conditions / Signals
- Neutral to mildly bullish; expects stock to remain above K1
- Structured as a net credit when possible (income strategy)
- High implied volatility makes the collected premium from extra short puts larger

## Notes
Unlike the put ratio backspread (where N_L > N_S), here N_L < N_S, so there is net short put exposure below K1 creating unlimited downside risk. The maximum profit is achieved if the stock stays in the [K1, K2] zone at expiry.