Ratio Put Spread

A ratio put spread is a high-risk income strategy that involves buying one put and selling two puts at lower strikes, creating a position that generates immediate income but carries unlimited downside risk below the lower breakeven point. This sophisticated two-leg strategy is designed for traders with moderate bearish outlook who want to enhance income generation through multiple short put positions while maintaining some downside participation through the long put. The strategy works best when implied volatility is elevated and expected to decline, allowing traders to collect substantial premium from the two short puts while maintaining limited upside protection. Risk management is absolutely crucial as the strategy has unlimited loss potential if the underlying falls significantly below the lower short strikes, requiring careful position sizing and active monitoring. Professional traders use ratio put spreads when they have strong conviction about support levels and want to generate enhanced income from put premiums while expressing moderate bearish bias. The strategy benefits from time decay and volatility compression but requires sophisticated risk management techniques

If NIFTY is at ₹25,800, set up: Buy ₹25,800 Put for ₹110, Sell two ₹25,400 Puts for ₹50 each, creating ₹10 net debit with profit zone between ₹25,400-₹25,790 but unlimited risk below ₹25,010.