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Front Put Ratio Spread

  • Neutral to slightly bearish strategy. Best for high IV when you expect stock to come down slightly.
  • Buy 1 put, sell 2 put at lower strike. Example, buy one 50 strike put, sell two 40 strike puts
  • Another way to think of it: It is a long put spread + 1 naked put
  • Very high probability of profit when done for credit
  • Example: If the above trade is opened for $1 credit then:
    • If stock doesn’t move or goes up, you keep the $1
    • If stock moves down between 40-50, the long put spread becomes profitable + the original credit
  • Great if the goal is to take stock assignment because the cost basis will much lower than if using just a short put

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