It is equivalent of doign two things
1: Buy 300 put and sell 290 put
2: Sell a separate 290 put.
Assume stock closed at 290 at expiration date, then clearly #1 has a value of $10, which equal to spread, and #2 has a value of $0. Total profit is $10x100 =$1000, you add 5x100=$500. The max profit is $1500.
However, you also have a credit of $5 when establish both #1 and #2, so, you max profit at stock price of 290 is $15. But you also hold stock, which declined by $10 from 300 to 290. So, at this point, you are fully protected at 290, with an extra $5 from that credit.If you have 100 shares of existing stocks, fully protected at 290.
Now, you will be assigned stock at 290. If stock continue to drop, that $5 credit will protect $2.5 stock price drop You will be assigned 200 shares of stock at 290 at 287.5. I guess my calculation is putting 7.5 (15/2）against the cost of 200 shares of 290 to be assigned, making the cost to be 282.5 per share for the 200 shares, not protecting the existing shares. Same $1500 cost reduction here. Just explained differently.
What I am saying here is that the cost reduction you get from the premium of selling the puts only is more than the $15. From what I see from APP, if price drop to 465 (the short put strike price) at expiration, the max profit is 28.9($15 spread + 13.9 credit received (41.6 premium received - 27.7 premium paid). The 100 shares of existing shares are protected at 465, with remaining 13.9 credit to be assigned to the 200 shares of 465, making the cost 458.05 (465-13.9/2). However, if selling put only, the premium collected is 41.6 . Using $15 for hedging the exising 100 shares, the remaining of 26.6 credit to the 200 shares of 465 to be assigned, making the cost 451.7 (465-26.6/2). You can see that selling put actually hedge better than the put ratio spread. Both can hedge existing shares, but for the newly assigned shares, selling puts only has a lower cost.
Did I confuse you even further? :)
Pretty straightforward
