What is a put backspread?

A put backspread sells one put at a higher strike and buys two puts at a lower strike in the same expiration. It is usually opened for a small credit, keeps that credit if the stock rises, and profits substantially on a sharp decline. Its maximum loss occurs if the stock expires exactly at the lower strike.

How do you calculate max loss on a put ratio backspread?

Maximum loss is the spread width minus the net credit received, or plus the net debit paid, multiplied by 100. With a short $100 put, two long $90 puts, and a $0.80 credit, the maximum loss is $9.20 per share or $920, reached with the stock at exactly $90 at expiration.

Where is the breakeven on a 1 by 2 put backspread?

There are two for a credit backspread. The upper breakeven is the short strike minus the credit, $99.20 in the example. The lower breakeven is the long strike minus the spread width plus the credit, $90 minus $10 plus $0.80, or $80.80. Below that the trade profits down to a stock price of zero.

Put backspread vs long put: which is better for a bearish bet?

A long put costs a debit and profits below the strike minus the premium, with a loss limited to the debit. A put backspread can be opened for a credit and keeps it if the stock rises, but needs a larger decline to profit and loses if the stock falls only to the long strike. Choose the backspread when you expect a crash rather than a drift lower.

Is a put backspread good for hedging a portfolio?

It can be. Below the lower breakeven it provides one long put of protection per spread for little or no upfront cost. The drawback is the loss valley: a moderate decline to the long strike loses on the hedge while the portfolio is also falling, so the protection only kicks in for a large move.

What is the maximum profit on a put backspread?

Profit is capped only by the stock going to zero. Below the lower strike the position gains $100 per dollar of decline per 1 by 2 spread, so the maximum is the lower breakeven price times 100. In the example that is $80.80 times 100, or $8,080.

Backratio Put Spread Calculator & strategy guide

Butterflies & RatiosAdvancedBearishDefined risk

Sell one put and buy multiple lower-strike puts to create convex bearish downside.

Payoff at expiration

Worked example: XYZ at $100, 60 days to expiration

Profit Loss Breakeven

Max profit: +$8,080; Large downside profit if the stock falls sharply
Max loss: −$920; Occurs near the long put strike, reduced by net credit if opened for credit
Breakevens: $80.80 & $99.20; Depends on strikes and net premium

The trade · net credit $0.80 a share ($80)

Sell $100 put · $3.60
Buy 2 $90 puts · $1.40

Price this backratio put spread on SPY with today's chain — then change the ticker, strikes and expiry.

Open in Build

What is a backratio put spread?

A backratio put spread, also called a put backspread or put ratio backspread, sells one put at a higher strike and buys two puts at a lower strike in the same expiration. It is the mirror image of a ratio put spread. The premium from the short put funds most or all of the two long puts, so the trade is normally opened for a small credit or near even money.

The position is bearish with convexity. Above the higher strike every option expires worthless and the trader keeps the credit. Below the lower strike the net exposure is long one put, so profit grows with every dollar of decline until the stock reaches zero. The loss zone lies between the strikes, with the maximum loss at the lower strike, where the short put is fully in the money and the two long puts have no intrinsic value.

The payoff diagram is a valley with a flat floor on the right at a small profit, a low point at the long strike, and a steep climb to the left as the stock falls. It is popular with traders who want crash protection or a bet on a sharp decline without paying a large debit for outright puts, accepting that a slow grind lower is the outcome that hurts.

Setup

Leg	Strike	Expiry
Sell 1 put	At the money	Near
Buy 2 put	2 strikes OTM	Near

Backratio Put Spread example

XYZ trades at $100 with 60 days to expiration. You sell one $100 put for $3.60 and buy two $90 puts for $1.40 each ($2.80 total). The trade opens for a net credit of $0.80 per share, or $80 for the 1 by 2 position. The spread between strikes is $10.

Stock at expiration	Result
$100 or above	All three puts expire worthless. You keep the $80 credit.
$90	The short $100 put is worth $10.00, costing $1,000, and both $90 puts expire worthless. P&L is −$1,000 plus the $80 credit, or −$920, the maximum loss.
$80.80	Lower breakeven. The short $100 put costs $19.20 ($1,920) and the two long $90 puts are worth $9.20 each ($1,840). Intrinsic value nets to −$80, offset by the $80 credit.
$70	The short $100 put costs $30.00 ($3,000) and the two long $90 puts are worth $20.00 each ($4,000). Net intrinsic is $1,000, plus the $80 credit gives $1,080. Every further dollar of decline adds $100.

Maximum loss is $920 if XYZ closes exactly at $90. The trade keeps the $80 credit at or above $100, loses money between the $99.20 upper breakeven and the $80.80 lower breakeven, and profits below $80.80. If XYZ fell to zero the position would be worth $8,080.

When to use a backratio put spread

You expect a sharp decline, such as a breakdown through major support or a negative event, and want leveraged downside exposure.
You want a bearish position that does not lose, or earns a small credit, if the stock instead rises or goes nowhere.
Implied volatility is low relative to its history, so the two out-of-the-money puts are inexpensive and a volatility spike during a sell-off adds to the gains.
You want portfolio protection with a lower cost than buying puts outright and are willing to accept a loss zone on a modest decline.
Typical entries use 45 to 90 days to expiration to give the move time to develop and to slow the time decay on the long puts.

Risks to understand

A slow, orderly decline to the long strike is the worst case. In the example a close at $90 loses $920, even though the stock fell 10 percent as predicted.
Time decay is the enemy when the stock is between the strikes, because the two long puts bleed value faster than the single short put.
Put skew makes out-of-the-money puts expensive in volatility terms, so the backspread may need to be opened for a debit or with a wider spread than the call version.
The short put can be assigned early once in the money, leaving you long 100 shares against two long puts, which changes the margin picture and the payoff.
A partial decline still loses. A move to $85 in the example loses $420 at expiration because the long puts have not yet recovered the full spread width.

Managing the trade

Take profits quickly when the stock breaks down, because rising intrinsic value and expanding implied volatility usually produce the best gains early in the move.
If the stock is drifting toward the long strike with a few weeks left, closing the position avoids the steepest part of the loss valley near expiration.
The short put can be rolled down to a lower strike to shrink the loss zone, which gives back some credit but improves the outcome on a moderate decline.
If the stock rallies and the position is nearly worthless, closing it frees margin and eliminates the chance of a late decline landing exactly at the long strike.
Use a time stop. If the expected catalyst has passed without a decline, the thesis is likely wrong and the remaining premium in the long puts is best salvaged.

Backratio Put Spread FAQs

What is a put backspread?: A put backspread sells one put at a higher strike and buys two puts at a lower strike in the same expiration. It is usually opened for a small credit, keeps that credit if the stock rises, and profits substantially on a sharp decline. Its maximum loss occurs if the stock expires exactly at the lower strike.
How do you calculate max loss on a put ratio backspread?: Maximum loss is the spread width minus the net credit received, or plus the net debit paid, multiplied by 100. With a short $100 put, two long $90 puts, and a $0.80 credit, the maximum loss is $9.20 per share or $920, reached with the stock at exactly $90 at expiration.
Where is the breakeven on a 1 by 2 put backspread?: There are two for a credit backspread. The upper breakeven is the short strike minus the credit, $99.20 in the example. The lower breakeven is the long strike minus the spread width plus the credit, $90 minus $10 plus $0.80, or $80.80. Below that the trade profits down to a stock price of zero.
Put backspread vs long put: which is better for a bearish bet?: A long put costs a debit and profits below the strike minus the premium, with a loss limited to the debit. A put backspread can be opened for a credit and keeps it if the stock rises, but needs a larger decline to profit and loses if the stock falls only to the long strike. Choose the backspread when you expect a crash rather than a drift lower.
Is a put backspread good for hedging a portfolio?: It can be. Below the lower breakeven it provides one long put of protection per spread for little or no upfront cost. The drawback is the loss valley: a moderate decline to the long strike loses on the hedge while the portfolio is also falling, so the protection only kicks in for a large move.
What is the maximum profit on a put backspread?: Profit is capped only by the stock going to zero. Below the lower strike the position gains $100 per dollar of decline per 1 by 2 spread, so the maximum is the lower breakeven price times 100. In the example that is $80.80 times 100, or $8,080.