Put Ratio Back spread Options trading strategy in Stock market technical analysis #shorts #krinu

Put ratio back spread is a Bearish strategy which results in a net credit , here an investor constructs this strategy with the following contracts with the same expiry for the same asset (Nifty)

1. Sells or writes one ITM (In The Money) Put option and receives the premium (Leg-1)

2. Buys two OTM (Out of The Money) Put option and pays the premium to the seller (Leg-2)

this results in a net credit as he sells ITM with a higher premium so the net credit is the Premium Received - Premium Paid x lot size

Case:1

If the underlying asset ( here Nifty) trades above the break even of Leg -1 at Expiry, means nifty is bullish so he makes a Limited profit from the ITM Put sold (Leg-1)

Case:2

if the underlying asset (Nifty) trades side ways or between the break even of Leg-1 and Leg-2 at expiry , means Nifty is neutral or its with in the range, here he makes a loss from both Leg-1 and Leg-2

Case:3

if the underlying asset (Nifty) is bearish or trades below the break-even of Leg-2 (two OTM Puts bought) he makes a Maximum profit from this strategy

Put ratio back spreads are bearish strategy the investor makes maximum profit when the underlying is extremely bearish and goes down ,

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