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.
Short 100 Underlying, Sell 2 ATM Puts
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.
Net Premium Received - Commissions Paid
Profit achieved when: Price of Underlying = Strike Price of Short Puts
Unlimited
Loss occurs when: Price of Underlying < Strike Price of Short Put - Net Premium Received OR Price of Underlying > Strike Price of Short Put + Net Premium Received
Loss = Price of Underlying - Sale Price of Underlying - Net Premium Received OR Strike Price of Short Put - Price of Underlying - Net Premium Received + Commissions Paid
Breakeven points
Strike Price of Short Puts + Points of Maximum Profit
Strike Price of Short Puts - Points of Maximum Profit
Commissions
These examples exclude commissions and fees. Include all transaction costs when evaluating the profit or loss of a position.