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+Cl,apter 24: Ratio Spreads Using Puts 359 
+expire worthless and the result would be a loss of commissions. However, there is 
+downside risk. If XYZ should fall by a great deal, one would have to pay much more 
+to buy back the two short puts than he would receive from selling out the one long 
+put. The maximum profit would be realized if XYZ were at 45 at expiration, since the 
+short puts would expire worthless, but the long January 50 put would be worth 5 
+points and could be sold at that price. Table 24-1 and Figure 24-1 summarize the 
+position. Note that there is a range within which the position is profitable - 40 to 50 
+in this example. If XYZ is above 40 and below 50 at January expiration, there will be 
+some profit, before commissions, from the spread. Below 40 at expiration, losses will 
+be generated and, although these losses are limited by the fact that a stock cannot 
+decline in price below zero, these losses could become very large. There is no upside 
+risk, however, as was pointed out earlier. The following formulae summarize the sit­
+uation for any put ratio spread: 
+Maximum upside risk 
+Maximum profit 
+potential 
+= Net debit of spread (no upside risk if done for 
+a credit) 
+= Striking price differential x Number of long 
+puts - Net debit (or plus net credit) 
+Downside break-even price = Lower strike price - Maximum profit potential + 
+Number of naked puts 
+The investment required for the put ratio spread consists of the collateral 
+requirement necessary for a naked put, plus or minus the credit or debit of the entire 
+position. Since the collateral requirement for a naked option is 20% of the stock 
+TABLE 24-1. 
+Ratio put spread. 
+XYZ Price at Long January 50 Short 2 January 45 Total 
+Expiration Put Profit Put Profit Profit 
+20 +$2,600 -$4,600 -$2,000 
+30 + 1,600 - 2,600 - 1,000 
+40 + 600 600 0 
+42 + 400 200 + 200 
+45 + 100 + 400 + 500 
+48 200 + 400 + 200 
+50 400 + 400 0 
+60 400 + 400 0