A ratio vertical spread that is constructed using put options. This involves buying one in-the-money put option and simultaneously selling two out-of-the-money put options. Investors bearish on volatility and neutral on market direction can use such a spread in a bid to make limited gains (the difference between the two strike prices minus the net premium paid). The potential losses will be virtually unlimited if the market follows downside trend, and limited to the net premium paid in the opposite direction.
The put ratio vertical spread is the reverse of a put backspread.
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