Options Talk - Episode 19 - exploring ratio put spreads

Options are complex, high-risk products and require knowledge, investment experience and, in many applications, high risk acceptance. We recommend that before you invest in options, you inform yourself well about the operation and risks.

Introducing episode 19 - exploring ratio put spreads

"Episode 19 - exploring ratio put spreads" offers a detailed examination of ratio put spreads, a sophisticated strategy for options traders. Koen and Peter provide insights into the benefits, risks, and practical applications of this technique, helping traders enhance their options trading strategies.

Understanding ratio put spreads

• Normal put spread: Involves buying a put and selling another put at a lower strike price.
• Ratio put spread: Involves buying one put and selling two puts at a lower strike price.
• Example: With a stock at $100, buy a 95 put and sell two 90 puts.

Benefits and risks

• Potential for credit: Ratio put spreads can be set up for a small credit or at even money.
• Protection: Offers downside protection with a cushion, making it profitable if the stock declines moderately.
• Maximum profit scenario: Achieved if the stock price is at the short put strike price at expiration.
• Break-even point: Calculated based on the credit received and the strike prices involved.
• Risks: If the stock drops significantly, the position can become loss-making, similar to a naked put.

Example analysis

• ASML example:
  • Stock trading at €880.
  • Normal put spread: Sell August 800 put, break-even at €825.
  • Ratio put spread: Buy 820 put, sell two 800 puts, break-even at €765.

Strategies and adjustments

• Market monitoring: Requires active monitoring, especially in declining markets.
• Adjusting positions: If the market declines, traders can sell the long put and buy lower strikes to limit losses.
• Comparison to naked puts: Ratio put spreads can be a more strategic alternative to naked puts, offering a profit cushion and lower break-even points.

Why listen to episode 19?

For traders looking to deepen their understanding of advanced options strategies, Episode 19 of 'Saxo Options Talk' is a must-listen. Packed with practical advice and expert insights, this episode will help you navigate the complexities of ratio put spreads, enhancing your trading repertoire.

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Your questions, our answers

We're eager to hear from you! Send your options-related questions to optionquestions@saxobank.com. Selected questions will be addressed in future episodes, providing customized advice and insights.

Conclusion:

"Episode 19 - exploring ratio put spreads" equips traders with the knowledge to effectively implement these advanced strategies. Koen and Peter’s expert guidance sheds light on the complexities of ratio put spreads, offering actionable strategies to enhance your trading performance. Tune in to transform your trading strategies and master the art of ratio put spreads with confidence.