Strategies · Library · Options
§2.39Hedges and structures
Ratio put spread
Buy one put above the market and sell two or three puts nearer the market for a net credit. It earns from a flat to gently higher market and has heavy loss if the price crashes.
Open in the builderAs a long-only proxy; see how ARCANE uses it.
- Asset class
- Options
- Held for
- To expiry
- Data
- ARCANE has part of the data
- Symphony
- Builds as a long-only proxy
The rule
- Signal
- Neutral to mildly bullish; expects the price to hold above the short strike without a collapse.
- Entry and exit
- Buy one higher-strike in-the-money put and sell two lower-strike puts, same expiry, aiming for a credit. Hold to expiry, or close early on a sell-off.
- Sizing
- More short puts than long puts, typically 2 to 1 or 3 to 2
How it fails
- Loss grows steeply on a crash since extra puts are uncovered, though capped by the price reaching zero
- Best case is the price pinned at the short strike; a rise leaves only the credit
- Time decay favours the seller, but a sharp drop wipes out the gain quickly
Data it needs
- options chain with strikes and premiums
- implied volatility
- underlying daily price
ARCANE has the underlying daily close but no options chains or implied volatilities
How ARCANE uses it
A Call that an asset holds above a level or edges higher, with crash risk disclosed, matches this view; paper only.
Builds as a long-only proxy. Holding the underlying with a trend filter echoes the mildly bullish view but not the pinned payoff or the credit.
Source: Kakushadze and Serur (2018), 151 Trading Strategies, §2.39, p. 32 of the SSRN version. Described in our words. Hedges and structures is ARCANE’s filing, not the book’s.