Put Backspread

A put backspread is a high-risk volatility strategy that profits from large downward price movements while collecting initial premium, making it ideal for traders expecting significant bearish breakdowns or market corrections. This sophisticated two-leg strategy involves selling one at-the-money put and buying two out-of-the-money puts at lower strikes, creating a position that benefits from explosive downward moves while generating immediate income. The strategy is particularly effective when traders expect major bearish catalysts such as earnings disappointments, economic downturns, or technical breakdowns that could drive substantial price depreciation. Professional traders use put backspreads when they have strong conviction about potential downside acceleration but want to reduce the cost basis through premium collection from the short put. The strategy has limited risk between the strikes but significant profit potential below the lower breakeven point, making it suitable for high-conviction bearish scenarios with crash protection characteristics. Risk management involves monitoring the position closely to avoid early assignment and managing the unlimited profit potential effectively

If NIFTY is at ₹25,800, set up: Sell ₹25,800 Put for ₹110, Buy two ₹25,400 Puts for ₹50 each, creating ₹10 net credit with limited risk of ₹390 between strikes but substantial profit below ₹25,010.