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+FIGURE 24-1. 
+Ratio put spread. 
++$500 
+C: 
+0 
+~ ·5. 
+X 
+w 
+iil 
+(/) $0 (/) 
+0 ....I 
+0 
+e a. 
+Part Ill: Put Option Strategies 
+Stock Price at Expiration 
+price, plus the premium, minus the amount by which the option is out-of-the-money, 
+the actual dollar requirement in this example would be $700 (20% of $5,000, plus the 
+$200 premium, minus the $500 by which the January 45 put is out-of-the-money). As 
+with all types of naked writing positions, the strategist should allow enough collater­
+al for an adverse stock move to occur. This will allow enough room for stock move­
+ment without forcing early liquidation of the position due to a margin call. If, in this 
+example, the strategist felt that he might stay with the position until the stock 
+declined to 39, he should allow $1,380 in collateral (20% of $3,900 plus the $600 in­
+the-money amount). 
+The ratio put spread is generally most attractive when the underlying stock is 
+initially between the two striking prices. That is, if XYZ were somewhere between 45 
+and 50, one might find the ratio put spread used in the example attractive. If the 
+stock is initially below the lower striking price, a ratio put spread is not as attractive, 
+since the stock is already too close to the downside risk point. Alternatively, if the 
+stock is too far above the striking price of the written calls, one would normally have 
+to pay a large debit to establish the position. Although one could eliminate the debit 
+by writing four or five short options to each put bought, large ratios have extraordi­
+narily large downside risk and are therefore very aggressive. 
+Follow-up action is rather simple in the ratio put spread. There is very little that 
+one need do, except for closing the position if the stock breaks below the downside 
+break-even point. Since put options tend to lose time value premium rather quickly 
+after they become in-the-money options, there is not normally an opportunity to roll