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Put Ratio Spread |
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Note: Ratio spreads are utilized if the investor doesn't want the market to move much either way once they make their trade. In that respect, it is considered a neutral strategy. While call and put ratio spreads can be useful strategies when an investor is expecting fairly stable prices over the short term, they are not without risk, since a ratio spread involves more short than long options. If the trade moves against the investor, the extra short option(s) expose him or her to unlimited risk.
To make a put ratio spread, the investor must buy puts at a higher strike and sell a greater number of puts at a lower strike. It would be preferable if this trade was initiated for a minimal debit or, if possible, a small credit. That way, should the stock jump the investor would not have suffered unduly because all of the puts will have expired worthless. However, should the stock plummet, the investor would face unlimited risk to the downside because they would have sold more options than they bought. For maximum profitability, the investor wants the stock price to stay at the strike price where he or she short options.
For example: the investor pays a $340 debit for putting on the trade. If the stock jumps above 60, the investor would only lose the $340 paid for the spread. However, the real money is made if the stock stays around $40. Here, the short 40 puts would expire worthless and the long 50 put would be worth $10. The value of the 50 put, minus the initial $350 debit would bring the net profit to $660. A sizable move to the downside would be a problem for the investor, as the downside breakeven point occurs when the stock price equals 36.70. Below this point the risk becomes unlimited.
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| Symbol |
Rate |
| GBP:CHF |
1.747703 |
| GBP:JPY |
155.484239 |
| GBP:USD |
1.638403 |
| NZD:USD |
0.627050 |
| EUR:CAD |
1.545998 |
| EUR:CHF |
1.516857 |
| EUR:GBP |
0.867915 |
| EUR:JPY |
134.947096 |
| EUR:USD |
1.421994 |
| AUD:JPY |
76.394373 |
| AUD:USD |
0.805000 |
| USD:CAD |
1.087204 |
| USD:CHF |
1.066711 |
| USD:JPY |
94.899879 |
| USD:SEK |
7.613010 |
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History