← Strategy LabLesson 41 · 4:06
Put ratio spread
Summary
A put ratio spread suits a view that XYZ dips a little, to about $95. You pay $59 and can make up to $441 if XYZ ends at $95; a rise costs only the $59, but below $90.59 the loss deepens, to $9,059 if XYZ went to zero. You break even at $99.41 and $90.59.
Key terms
- put ratio spread
- Buy one put and sell two puts at a lower strike: a cheap bet on a small dip that loses deeply in a crash.
- one by two ratio
- uncovered put
- A sold put that the shares you own do not cover, so assignment means buying 100 more shares with extra cash.
- assignment
- When a buyer exercises and you, as the seller of that option, must deliver.
- margin
- Money your broker holds against what a sold position could lose.
- break-even
- The stock price on the last day where you neither make nor lose money: strike plus premium for a call, strike minus premium for a put.
Check yourself
Answer each question to see why the right answer is right.
1. What does the lesson's put ratio spread cost to open?
2. XYZ falls hard and ends at $85. What is your result?
3. Where are the two break-evens?
4. XYZ rises and ends at $110. What is your result?
5. If XYZ went all the way to zero, how much would you lose?
Finished the video and the quiz? .