The ratio put write is a neutral strategy in options trading in which the options trader short sell the underlying stock and sells more puts than shares short.
Sell short 100 shares; Sell 2 puts. Use the same strike price and expiration date.
Like the ratio call write, it is a limited profit, unlimited risk options trading strategy that is taken when the options trader thinks that the underlying stock price will experience little volatility in the near term.
Profit/Loss Potential
This strategy has the same risk/reward profile as the ratio call write. However, it is a highly inferior strategy because, firstly, while the ratio call writer gets to enjoy dividends, the ratio put writer has to pay them. Secondly, call options generally command higher premiums than put options.
Zero minus strike price minus net opening cost.
Unlimited as the stock price rises.
Breakeven points
The breakeven can change depending on which strikes the stock finishes between.
Calculate the breakeven prices
- Net opening cost plus twice the strike price. Use this result only if it is at or below the strike price.
- Zero minus net opening cost. Use this result only if it is at or above the strike price.
Ignore results below zero. A boundary price listed twice is a single breakeven.
Commissions
These examples exclude commissions and fees. Include all transaction costs when evaluating the profit or loss of a position.
Similar strategies
Net opening cost means everything paid to open the position, less everything received. Include the shares as well as the options. If opening the position brings in money overall, treat that cost as a negative amount.
Amounts are per share before fees. Multiply by the shares covered by the position; standard equity options usually cover 100 shares per contract. If a maximum profit or loss calculation gives a negative amount, use zero. These figures assume matching contracts held to expiration and do not include financing or early assignment.
Financial mechanics reviewed:
Sources: OIC strategy reference; OIC assignment guidance. Formulas use the stated payoff assumptions; examples are illustrative, not market quotes. Editorial standards and corrections.