Ratio Spreads Using Puts 
The put option spreader may want to sell more puts than he owns. This creates a ratio 
spread. Basically, two types of put ratio spreads may prove to be attractive: the stan­
dard ratio put spread and the ratio calendar spread using puts. Both strategies are 
designed for the more aggressive investor; when operated properly, both can present 
attractive reward opportunities. 
THE RATIO PUT SPREAD 
This strategy is designed for a neutral to slightly bearish outlook on the underlying 
stock. In a ratio put spread, one buys a number of puts at a higher strike and sells 
more puts at a lower strike. This position involves naked puts, since one is short more 
puts than he is long. There is limited upside risk in the position, but the downside risk 
can be very large. The maximum profit can be obtained if the stock is exactly at the 
striking price of the written puts at expiration. 
Example: Given the following: 
XYZ common, 50; 
XYZ January 45 put, 2; and 
XYZ January 50 put, 4. 
A ratio put spread might be established by buying one January 50 put and simulta­
neously selling two January 45 puts. Since one would be paying $400 for the pur­
chased put and would be collecting $400 from the sale of the two out-of-the-money 
puts, the spread could be done for even money. There is no upside risk in this posi­
tion. If XYZ should rally and be above 50 at January expiration, all the puts would 
358