Put Ratio Back Spread, Synthetic and Risk Reversal

The two bear spreads you just built were polite, defined-risk trades with capped rewards on both ends. This chapter steps up to three bolder bearish shapes, each chasing a much larger payoff on a fall, and two of them carry a tail of loss that never closes on the upside. You will meet the put ratio back spread, which costs little and pays enormously on a real break lower; the short synthetic future, where one call and one put behave exactly like selling a NIFTY future; and the risk reversal, a bearish collar that opens for a credit. Each is assembled from legs you already know, and each leans hard on the downside in a different way.

The one-line idea

All three trades share a bearish lean, but they split sharply on where the risk lives. The put ratio back spread keeps its worst case printed on the ticket and pays without limit on a crash. The short synthetic future and the risk reversal both open for a credit and finish profitable more often, but each sells a call with nothing above it, so a rally costs without end. Read each one by where its loss is capped and where it is not.

The put ratio back spread

A ratio back spread deliberately breaks the one-for-one balance of an ordinary spread. You sell one at-the-money put and buy two puts a strike lower, so you end up holding one extra put, which means you profit powerfully if NIFTY falls hard.

Leg	Action	Strike	Premium per share	Cash flow per lot of 65
1	Sell put	24,050	295.1 received	plus Rs 19,182 in
2	Buy put (x2)	23,950	256.6 each, paid	Rs 33,352 out
			Net debit	Rs 14,170 out

The one put you sell brings in Rs 19,182, and the two puts you buy cost Rs 33,352 together, so the position opens for a small net debit of Rs 14,170. Because you own one more put than you sold, a deep fall lets that extra put run, all the way to a maximum profit labelled Rs 1,536,080 if NIFTY collapsed toward zero. Treat that figure as shorthand for "very large on a crash."

Number	How it is built	This trade
Max profit	the extra long put gains without limit as NIFTY falls toward zero	Rs 1,536,080
Max loss	at 23,950 the sold put is 100 points against you, plus the debit	Rs 6,500 plus Rs 14,170 = Rs 20,670
Breakeven	the short strike minus the valley loss spread over the one net put	23,950 minus 318 = 23,632

The danger here is not on the upside, it is in the middle. Your worst case lands not on a big move but on a small one, exactly at the 23,950 short strike, where the put you sold is 100 points in the money against you while both puts you bought are still worthless. Here is the trade settled at five levels of NIFTY, per lot.

NIFTY at expiry	24,050 put you sold	23,950 puts you bought (two)	Net profit or loss
24,200	worth 0	worth 0	minus Rs 14,170 (debit only)
23,950	worth 100	worth 0	minus Rs 20,670 (max loss)
23,632	worth 418	worth 636	Rs 0 (breakeven)
23,300	worth 750	worth 1,300	plus Rs 21,580
23,000	worth 1,050	worth 1,900	plus Rs 41,080

Read it and the odd shape makes sense. Above the strikes you lose only the debit, and a small slide to 23,950 is the single worst place to land. Below the breakeven of 23,632 the second long put has paid back everything, and from there the profit accelerates the further NIFTY drops. The 32 percent probability of profit is the honest price of that geometry: this trade rewards a real fall, not a gentle drift.

The short synthetic future

The next shape copies a futures position out of two options. Sell the at-the-money call and buy the at-the-money put at the same 24,050 strike, and the pair behaves exactly like a short NIFTY future, a single straight diagonal line of profit and loss.

Leg	Action	Strike	Premium per share	Cash flow per lot of 65
1	Sell call	24,050	425.8 received	plus Rs 27,677 in
2	Buy put	24,050	295.1 paid	Rs 19,182 out
			Net credit	plus Rs 8,496 in

The call you sell brings in more than the put you buy costs, so the position opens for a small net credit of Rs 8,496. From there it is a straight line. Every point NIFTY falls, you gain 65 rupees. Every point it rises, you lose 65 rupees.

Number	How it is built	This trade
Max profit	the long put gains as NIFTY falls toward zero, plus the credit	Rs 1,571,746
Max loss	the sold call has nothing above it	Unlimited
Breakeven	the strike plus the credit per share	24,050 plus 130.7 = 24,181

The breakeven at 24,181 is the synthetic future price, sitting just above spot because the cost of carry is baked into the options. Here is the straight line settled at four levels.

NIFTY at expiry	24,050 call you sold	24,050 put you bought	Net profit or loss
23,550	worth 0	worth 500	plus Rs 40,996
24,050	worth 0	worth 0	plus Rs 8,496
24,181	worth 131	worth 0	Rs 0 (breakeven)
24,550	worth 500	worth 0	minus Rs 24,004

The synthetic future is not a beginner's first trade. Its real value is conceptual: selling a call while buying a put at one strike equals being short the future, proof that a call and a put are two halves of the same instrument.

The risk reversal

The last shape softens the synthetic into a bearish collar. You buy a put below the money for downside profit and sell a call above the money to pay for it, leaving a gentle slope in between.

Leg	Action	Strike	Premium per share	Cash flow per lot of 65
1	Buy put	23,950	256.6 paid	Rs 16,679 out
2	Sell call	24,150	370.1 received	plus Rs 24,057 in
			Net credit	plus Rs 7,378 in

The call you sell brings in more than the put you buy costs, so the risk reversal opens for a net credit of Rs 7,378. Below 23,950 the long put profits and the gain grows the further NIFTY falls. Between the two strikes you simply keep the credit. Above 24,150 the sold call turns against you and the loss runs without limit.

Number	How it is built	This trade
Max profit	the long put gains as NIFTY falls toward zero, plus the credit	Rs 1,564,128
Max loss	the sold 24,150 call has nothing above it	Unlimited
Breakeven	the call strike plus the credit per share	24,150 plus 113.5 = 24,264

Here is the collar settled at five levels of NIFTY, per lot.

NIFTY at expiry	23,950 put you bought	24,150 call you sold	Net profit or loss
23,450	worth 500	worth 0	plus Rs 39,878
23,950	worth 0	worth 0	plus Rs 7,378
24,150	worth 0	worth 0	plus Rs 7,378
24,264	worth 0	worth 114	Rs 0 (breakeven)
24,550	worth 0	worth 400	minus Rs 18,622

Notice the flat shelf of Rs 7,378 running across the whole gap from 23,950 to 24,150. That wide calm band is where the 60 percent probability of profit comes from, but it does nothing to cap the tail above it.

Your odds across the three

The probabilities of profit tell the same story the shapes do. The put ratio back spread prints just 32 percent, because it needs a genuine fall to clear its valley and reach the accelerating profit line. The short synthetic future sits at 56 percent and the risk reversal at 60 percent, both above half, because each starts with a credit and a wide stretch of price where it simply wins. But high odds bought with an uncapped tail are not safety: those two win more often and lose far worse on the rare day they lose.

Margin, the cost of an open tail

Look at the three margins side by side and the exchange tells you, in cash, exactly which trades are dangerous.

Strategy	Net	Max loss	Margin
Put ratio back spread	debit Rs 14,170	Rs 20,670	Rs 46,304
Short synthetic future	credit Rs 8,496	Unlimited	Rs 169,046
Risk reversal	credit Rs 7,378	Unlimited	Rs 163,941

The defined-risk put ratio back spread blocks Rs 46,304, a little more than twice its own worst loss. The two undefined-risk trades each block over Rs 1.6 lakh, because the exchange is holding collateral against a tail that has no end. Whenever a structure ties up that kind of capital, take it as a signal to find where the unlimited side lives before you place it.

Time decay

Time treats the three trades differently. The put ratio back spread is net long one put, so the clock works against it: sitting still near the short strike lets the long puts bleed, part of why a quiet drift to 23,950 is its worst outcome. The short synthetic future has almost no time value at all, so its blue T+0 line and orange at-expiry line lie nearly on top of each other, decaying no more than a real future does. The risk reversal earns a little from decay while NIFTY holds inside its flat band, as the sold call wastes faster than the bought put, but that small help is dwarfed by the directional risk on either side.

How the three compare

The put ratio back spread is the only member of the trio with a defined worst case, Rs 20,670 at 23,950, which makes it the one to reach for first. The short synthetic future is a pure leveraged short, unlimited above 24,181, and the risk reversal is a bearish lean with a wide cushion but the same uncapped tail above 24,264.

If you are bearish and still learning, prefer the put ratio back spread from this trio, or better still the plain bear put spread from the last chapter. Both keep your worst case on the ticket where you can size against it. Leave the short synthetic and the risk reversal until you can actively manage an uncapped short, and never hold one through a known event without a plan to cap the upside first.

You can build all three in sandbox trading (analyzer mode in OpenAlgo), placing the legs and watching the put ratio back spread carve its loss valley, the synthetic draw a perfectly straight line, and the risk reversal slope between its strikes. Drag the modelled price upward on the two credit trades and watch the loss line fall without end. That single sight is the whole lesson. Next we return to defined-risk ground with the bearish butterfly and condor, two cheap, targeted bets on a precise landing below the money.

Key takeaways

• The put ratio back spread sells one put and buys two lower puts for a small debit. Its worst case is a defined Rs 20,670 at 23,950, its breakeven is 23,632, and it pays hugely on a real fall, with a 32 percent chance of profit.
• The short synthetic future sells the 24,050 call and buys the 24,050 put, equalling a short future: a straight line, breakeven 24,181, UNLIMITED loss above it.
• The risk reversal buys the 23,950 put and sells the 24,150 call for a credit, a bearish collar with a flat Rs 7,378 shelf between the strikes and UNLIMITED loss past 24,264.
• The two credit trades show higher odds, 56 and 60 percent, but those odds sit above a tail with no floor, and the exchange blocks over Rs 1.6 lakh of margin against each.
• For a beginner, the defined-risk put ratio back spread is the only one of the trio to reach for first, and only with its worst case sized into the position.