In this strategy workshop, Liz and Jenny explain the basics of a Put Ratio Spread. This spread consists of a Long Put Option and two Short, further Out of The Money (OTM) Put Options at a lower strike. Executing this trade for a credit eliminates risk to the upside.
We place Put Ratio Spreads in liquid stocks that also have a high Implied Volatility Rank (IVR). This allows us to collect a larger credit, as the option prices are inflated. Generally, we consider anything with an implied volatility rank of over 50% to be high.
This is a neutral to slightly bearish strategy, and maximum profit is achieved when the price of the stock "pins" at our short Put strike.
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