Schaeffer's Advanced Options: A Hypothetical Ratio Put Spread on Force Protection, Inc.

In yesterday's edition of Advanced Options, we analyzed the ratio put spread, which allows spot-on option speculators to profit from a stock's stagnation or moderate move lower. In today's column, we're on a mission to dissect a theoretical ratio put spread on mine-protected vehicle mogul Force Protection, Inc. (NASDAQ: FRPT).

Before we begin, let's take a fresh look at the ratio put spread. The strategy is generally utilized by investors expecting little volatility or a slight decline from the stock in the near term. Before initiating the spread, the trader should have a "bottom" in mind – typically the site of technical support – as a significant journey into the red could result in hefty losses on the play.

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