Put Backspread

Put skew is the reason. OTM puts have higher IV than ATM puts (fear premium), so you're selling cheaper ATM puts and buying expensive OTM puts. Call skew works the opposite way - OTM calls are cheaper than ATM calls. This structural difference makes put backspread credits harder to achieve.

Crashes are faster than rallies, reducing theta decay time. IV spikes during crashes add vega profit to your 2 long puts. These dynamics can overcome the skew disadvantage. Also, put backspreads are excellent portfolio crash protection with defined cost.

Max loss = (Spread Width - Net Credit) × 100 if entered for credit, or (Spread Width + Net Debit) × 100 if entered for debit. This occurs at the long strike at expiration. You cannot lose more than this regardless of stock movement.

Yes, if you entered for a credit. Above the short strike, all puts expire worthless and you keep the credit. This two-sided profit potential is a key advantage of credit entries. If you entered for a debit, you lose the debit if stock rallies.

Below the lower breakeven, which is: Long Strike - Max Loss per share. For example, if long strike is A$45 and max loss is A$4.50 per share, lower breakeven is A$40.50. Below A$40.50, profits accelerate with every dollar the stock falls.

No - enter BEFORE the crash when IV is low and puts are cheap. If you wait until the crash starts, IV has already spiked, making puts expensive. The idea is to buy cheap crash protection before fear hits. Think of it as buying insurance before the disaster.

Close during the initial IV spike, typically within 1-2 days of the crash. Don't wait for the stock to reach 'target' levels. IV normalizes even during continued declines (the 'IV reversal'). A 300% winner today might be a 100% winner in 3 days if IV drops.

Short put assignment creates a LONG stock position (you buy shares at strike). Short call assignment creates a SHORT stock position. Put backspread assignment is actually manageable - you now own shares that you can sell, plus you still own 2 long puts for protection.

Rolling is possible but often costly if stock is between strikes. If thesis is still valid (crash just delayed), roll to later expiry. If thesis is broken (stock rallied, no longer bearish), take the loss rather than throwing good money after bad.

Use index options (XJO) for broad hedge. Size based on portfolio value at risk. Accept the max loss as your 'insurance premium.' Roll quarterly or when IV is very low. Example: A$500K portfolio, XJO backspread with A$800 max loss provides meaningful crash protection at defined cost.

Track put skew percentile over 6-month lookback. Enter when skew is below 40th percentile (flatter than normal). This reduces the premium paid on OTM puts. Also monitor skew dynamics - rapidly steepening skew often precedes crashes (smart money buying protection), confirming your thesis even as entry cost rises.

Day 1: If up 200%+, consider closing 50% to lock in gains. Day 2: Close remaining if IV remains elevated. If stock continues falling but IV drops, you may not be making more money. Don't wait for 'the bottom.' Have dollar profit targets set before crash starts. Crashes bounce suddenly.

Convert when: (1) Stock crashed significantly below long strike, (2) Short put is deep ITM (assignment risk), (3) You expect continued decline, (4) IV is still elevated. Close short put, keep 2 long puts. Your cost basis on longs is favorable. Removes the zone where profits decrease on further decline.

Include crash periods (March 2020 is essential for ASX). Track IV dynamics, not just price. Include skew modeling in your backtest (OTM put premiums). Test multiple exit rules (profit target vs time-based). Calculate expected value including low win rate with high avg wins. Expect 25-35% win rate with 150-250% average wins.

1:3 ratio: Higher profit acceleration (net +2 puts below strike vs +1), but higher max loss and likely larger debit entry. Use when expecting catastrophic crash (-25%+). The extra long put significantly amplifies profits in severe crashes but increases cost and max loss. Reserve for high-conviction crash scenarios.