– Glossary

Put ratio backspread

A directional trade with a hedging component that allows a trader to book a small profit or break even in the event that the trade moves against them. The risk is limited while the reward is unlimited. Put ratio backspreads involve selling a near-the-money put (illustrated by a higher strike price) while purchasing two or more out-of-the-money puts. This strategy is designed for a bearish outlook on the underlying stock. Sharp moves lower and increasing volatility are ideal for this strategy. (See also \"call ratio backspread\").

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