-The Put Ratio is nothing more than a Bear Put with an extra Short Put usually at the strike price of the Short Put in the Bear Put.  Example:  BTO one Long Put at 25 and STO two Puts at strike 20.  The maximum reward is achieved if the stock settles at the Short Put strike.  The trade can be placed for a debit or a credit.  If the stock settles between the long and short strikes, we will achieve profit but it is reduced and the downside break even is the Long Put strike less the debit (if placed for a debit).  If placed for a credit, the trade will make a small profit wherever it settles above the Long Put Strike.

The downside profit begins to diminish the further the stock falls  below the Short Put strike.  The Short Puts will cost more to close as the stock falls which is detrimental to the seller of the Puts, so even though the 25 Long Put is increasing in value, the Short Puts are losing faster that the Long Put is gaining.  At expiration, when the Stock falls below the amount of the Short Put premium collected, the position begins to lose.  Because there is one Put uncovered, the trader must post margin on the trade.

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