Put Front Spread- An Option Trading Strategy

Today, we shall learn about the Put Front Spread options strategy in this article. The spreads strategies generally have a large profit window due to the long spreads involved.
A put ratio spread strategy is a neutral to bearish strategy. This strategy is created by buying a put debit spread with one extra short put at the short strike price of the debit spread. Traders generally enter this strategy for the net credit; thus, no upside risk is involved.
How to set a put-front spread options strategy?
In order to set up a put front spread options strategy; traders need to follow the below order:
Buy a put option at ATM or OTM
Sell two further OTM put option contracts at a low strike price for receiving the net credit.
The highest profit on the Put Front spread:
The distance or the spread between the long strike price + short strike price + credit received will be the highest profit on this strategy for the trader.
Let us understand a put-front spread options strategy with an example:
As we saw in this strategy, traders sell the near-month put option and buy the farther OTM option contracts.
Suppose the stock of ABC is currently trading at ₹50. Now trader sells a put option with a strike price of ₹50, expiring in 30 days, and receives a premium of ₹2.
Further, he buys a put option contract with a low strike price of ₹45, which also has the same expiry of 30 days. The premium paid for buying this put option contract is ₹0.50.
Thus, the net premium profit upon entering the strategy is ₹2-0.50 = ₹1.50. (₹150 on the contract).
Regardless of the price moving in your favor, traders will have a profit of ₹150.
This strategy limits the traders' profit potential and reduces the potential loss. In case the price of the stock remains above ₹50 at the time of expiry trader will keep the initial credit received of ₹2. In case the stock price falls below ₹45, then traders will lose ₹3.5, which is the difference between the spread minus the net premium (₹5-₹1.5).
This strategy is very useful when the trader is expecting a slight fall or decline in the underlying asset price.