Short Put Ratio Strategy (1x2)

A short put ratio strategy with a 1x2 layout involves buying one higher-strike put option and selling two lower-strike put options on the same stock with the same expiration date. Because you sell more options than you buy, the two short puts usually more than pay for the long one, so the trade opens for a net credit. Investors choose this strategy when they hold a mildly bearish to neutral view, expecting the stock to drop slightly toward the lower strike price without breaking heavily beneath it.

Maximum profit is reached if the stock price closes right on the lower strike price at expiration. In that scenario, the long put reaches full value while both short puts expire worthless. However, holding an extra unhedged short put exposes you to substantial downside risk if the stock price drops toward zero. If the stock rallies instead, your risk is capped at the initial net debit paid (or you keep the upfront net credit).