Put Ratio Spreads vs Broken Wing Butterfly Spreads

Описание: In most equity and index options, put skew is structural: out-of-the-money (OTM) puts typically trade with higher implied volatility than at-the-money (ATM) puts, and skew often steepens after selloffs as demand for downside hedges increases.

In this Options for Strategic Investors lesson, I show how traders attempt to mine put skew using 1x2 put ratio spreads, why these structures can be deceptively dangerous (short gamma + short vega + tail risk), and how to express a similar skew thesis using butterflies / broken wing butterflies (BWBs) to bound downside risk.

00:00 Put skew basics + why skew steepens after selloffs
01:00 Harvesting skew with a 1x2 put ratio spread (concept)
01:40 Building the SPY 1x2 ratio in Tastytrade (strike/delta selection)
03:00 OptionStrat breakdown: credit, margin, max profit/loss, Greeks
04:00 Why ratios can blow up: short gamma + short vega (T+0 stress)
05:00 Why traders like ratios anyway: selling “richer” OTM vol
06:40 Core risk summary: when it works vs when it fails
07:15 Transition: same skew idea, but with defined risk via butterflies
08:00 Add the tail put: converting ratio → butterfly (capping tail risk)
09:00 Symmetric put fly: defined max loss + what changes on T+0
10:30 The problem with the symmetric fly: behavior if spot drifts up
11:10 Turning it into a broken wing butterfly (BWB) to improve carry
12:00 Example BWB strikes + near-zero cost structure (defined risk)
13:00 Greeks comparison: delta/theta/gamma/vega vs the ratio spread
14:00 Volatility stress comparison: ratio vs BWB under IV expansion
15:00 Time/IV tailwind: keeping skew exposure with bounded risk
16:10 Trade-off: pay for tail protection, gain management optionality
17:00 Why the far OTM long put matters: “cheap vega” + slow-burn hedge
18:00 Vega by strike in Tastytrade (near money vs middle vs far OTM)
20:40 Practical considerations: skew, liquidity, sizing, learning value
22:20 Key takeaways recap: ratios → BWBs for risk-defined skew mining
23:00 Full risk disclosures

This content is provided for educational and informational purposes only and does not constitute investment advice, trading advice, tax advice, or a recommendation to buy or sell any security, futures contract, or options contract. I am not acting as your financial advisor or fiduciary. Any strategies, examples, symbols, strikes, expirations, pricing, margin figures, Greeks, and profit/loss diagrams shown are illustrative and hypothetical, may use simplified assumptions, and may not reflect real-time market conditions, transaction costs, liquidity constraints, slippage, assignment risk, early exercise risk, or broker-specific margin treatment.

Options involve substantial risk and are not suitable for all investors. Complex spreads (including ratio spreads and butterflies/broken wing butterflies) can create large losses, may behave differently under volatility regime shifts, and may be impacted by changes in implied volatility, interest rates, dividends, and market microstructure. You can lose more than your initial investment in certain options strategies, and losses may occur rapidly. Futures and futures options involve leverage and may not be appropriate for all accounts.

Past performance is not indicative of future results. Market conditions can change quickly, and outcomes vary based on timing, execution, volatility, and position management. Before implementing any strategy, you should consider your objectives, experience, risk tolerance, and financial situation, and consult a qualified professional as needed. Ensure you understand your broker’s rules, approvals, commissions/fees, and margin methodology.

For options risk disclosures, review “Characteristics and Risks of Standardized Options” (ODD) from your broker and via the Options Clearing Corporation:
https://www.theocc.com/company-inform...