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THE OPTIONS COURSE- PUT RATIO BACKSPREADS

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THE OPTIONS COURSE

PUT RATIO BACKSPREADS
The implementation of a put ratio backspread is a great way to play a bear market. A put ratio backspread is a delta neutral (nondirectional risk trade), which allows us to profit substantially from strong downward movement; however, we can also hedge and protect ourselves from upward movement. Thus, if we are incorrect and the stock goes against us, we are in a position where we won’t lose anything, or we may even realize a small profit, depending on how we enter into the trade. I like to use a put ratio backspread when I can identify a stock with a bearish bias and expect the stock to make a significant move. 

If we are correct and the stock makes a strong move to the downside, we’ll be in a position with limited profit potential (the stock can only fall to zero). If we are wrong and the stock moves against us, we can let the options expire worthless, not have to pay commissions to exit, and not lose any money or even make a little if the trade …