Put Back Spread¶
A put back spread is a bearish options strategy that sells one put at a higher strike price and buys two puts at a lower strike price, all sharing the same expiration date. The position is structured to collect a net credit on entry, with limited risk in the middle zone and unlimited profit potential if the underlying collapses. It is the bearish counterpart to the call back spread and is designed for traders anticipating a sharp, sudden decline.
HOW IT WORKS¶
The strategy uses a 1:2 ratio: sell 1 put at a higher strike (H) and buy 2 puts at a lower strike (L). The net credit equals the premium received from the short put minus the combined cost of the two long puts. Three outcomes define the risk profile at expiration:
- Above H: All puts expire worthless. The trader keeps the net credit.
- Between L and H: The short put loses value while the long puts expire worthless. Maximum loss occurs exactly at L and equals (H − L) minus the net credit received.
- Below L: The two long puts outpace the short put loss. Profit grows as the stock falls further.
The position requires a move below the lower strike to become profitable on the downside, and the breakeven sits well beneath L.
IN TAPEBOARD¶
Tapeboard displays the full risk profile of a put back spread on the position chart, including the maximum loss point at the lower strike and the downside breakeven level. When building the spread in the terminal, the net credit or net debit is calculated automatically as you select strikes and expiration. The payoff diagram updates in real time so traders can visualize the middle-zone loss before entering the trade. Tapeboard also surfaces implied volatility at each strike, which is relevant because the strategy benefits most when the short put is sold into elevated volatility.