Put Backspread

Put Backspread


Long two OTM put options and short one ITM put option.

Risk / Reward

Maximum Loss: Limited to the difference between the two strikes less the premium received for the spread.

Maximum Gain: Limited on the upside to the net premium received for the spread. Unlimited on the downside.


When to use: When you are bearish on market direction and bullish on volatility.

This strategy could also be referred to as a Short Put Backspread, however, I will refer to this strategy simply as a Put Backspread.

A Put Backspread should be done as a credit. This means that after you buy 2 OTM puts and sell 1 ITM put the net effect should be a credit to you. I.e. you should receive money for this spread as your are short more than you are long.

Put Backspread's are a great strategy if you are bullish and bearish at the same time, however, have a bias to the downside. Looking from the payoff, you can see that if the market sells off you make unlimited profits below the break even point. If, however, you are wrong about the direction and the market stages a rally instead, you still win - though your profits are limited.

You might say that this type of strategy is similar to a Long Straddle - and you would be right. The difference is that 1) the profits are limited on one side and 2) Backspread's are cheaper to put on.

Comments (20)


March 29th, 2012 at 11:45pm

Hi Azad,

Are you mixing different underlyings here? What is SBI?

A put backspread as described here is done at a ratio of 2 to 1 on options on the same underlying within the same expiry date.


March 29th, 2012 at 11:01am

Hi Peter,
I used 3 lots of Nifty and 1 lot of SBI.I am very surprise that Put back spread not working at all, I give you one Example : When Nifty trade above 5400, I buy 2 lots of 5400 PE at 68 and Short 1 lot of 5700 PE at 218 now today is the expire day and my long 5400 PE expire at 214 and short 5700 PE expire at 534, now you see where is the profit ? One other example I give you I buy 2 lots of SBI {125 shares } 2150 PE at 84 and Short 1 lot of 2350 PE at 178 now after expire today price is 2150 PE at 88 and 2350 PE at 300 when SBI spot last close at 2060, huge loss, My other two Nifty position went more losses. I told you these are the worst strategy I used in my entire trading carrier, God save all who used these.


March 28th, 2012 at 6:13pm

Is this on the NIFTY? What strikes and expiration date are you trading?


March 28th, 2012 at 4:33am

Hi, Peter
I am using Put Back Spread in all my trade. I am expecting market to go down and infact market going down but still I am lossing big money, better to short in futures I think.


March 26th, 2012 at 7:52pm

Hi Azad,

Sorry to hear of your losses!

Long option positions (including combinations) are negatively affected by the passage of time (time-decay), which is determined by the volatility.

So if you are planning on being long options (or long a combination of options) it is best to choose an underlying where the implied volatility is relatively low. If you buy options with a high volatility it can often happen that when the market moves in your favor the value change as a result of the decrease in volatility is greater than that of the gain due to price movements.

What underlying are you trading?


March 19th, 2012 at 9:15am

Hi Peter,
Today I book losses half of my Put Back Spread position, Our markets are bearish for last one month but still I am losing money. I do every thing in this market but still I am not made any money rather I loss almost every thing I have and now I am in huge debt.I am very depress and don't know what to do, where I go .



March 5th, 2012 at 5:58am

Sounds like the market is not moving fast enough. Remember that with this position you are also fighting time decay - so if the market moves slowly then the decrease in volatility for the position will have a greater negative impact on your P&L than the market move itself.


March 2nd, 2012 at 9:27am

Hi Peter,
One thing I am not understand, I am in this market since 2005 but never used this options strategy. I buy options earlier and always losing money, now after visiting your sites I try to used these complex strategy. Now I have three open positions {put back spread } here in our markets, two in nifty and one in SBI, both Nifty and SBI are gradually declining but I still losing money, why ?


February 27th, 2012 at 5:15pm

Hi Azad,

If I am bullish I would look first at a call backspread. Bearish a put backspread. Neutral a long condor (also called iron condor if you use both calls and puts).


February 27th, 2012 at 7:19am

Hi Peter,

Just tell me one thing ? out of all these option strategy's which one you personally prefer ? In other word when you are bearish or bullish which one option strategy's you used.


May 1st, 2011 at 7:14pm

If you were to exit the trade, you would exit both legs at the same time. The timing, however, is up to you - if the position has made huge gains quickly you might want to exit immediately and move onto your next trade.


May 1st, 2011 at 11:39am

Do you hold both legs of this until expiration, or close your positions before then? In other words when and how do you exit?


January 19th, 2011 at 4:34pm

It is cheaper to put on as a put backspread is normally done for a credit i.e. you receive money in your account when this trade is established rather than paying out money.

It is similar to a long straddle because of the payoff profile. Not exactly the same as the payoff flattens on the upside, but similar all the same.


January 18th, 2011 at 3:10am

how backspread is cheaper to put on....in put backspread n how long straddle n put backspread is similar


September 2nd, 2010 at 5:47pm

Volatility of price is best described on the Volatility page.


September 2nd, 2010 at 7:26am

please define volatility of price


September 1st, 2010 at 9:12pm

Hi Adarsh, a bear market defines a period where the prices of an asset are in a declining phase. Bear volatility defines a period where the volatility of prices are declining.

They do not necessarily happen at the same time. Many times, especially for equities volatility declines when the stock price rises.


September 1st, 2010 at 8:30pm

please explain the basic difference between bear market and bear volatility. i will greatful.


August 12th, 2010 at 6:10pm

Buy Call = Right to Buy Stock
Sell Call = Obligation to Sell Stock

Buy Put = Right to Sell Stock
Sell Put = Obligation to Buy Stock

Emmanuel Armah

August 12th, 2010 at 6:38am

please can someone explain the following terms to me.

buy CALL option

buy PUT option

Sell CALL option

Sell PUT option

I will be grateful .


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