March 2020: a put ratio on Europe's banks with a breakeven at zero

March 2020. The Euro Stoxx Banks index had halved in a month, and deep out-of-the-money puts were priced for the end of the system.

The structure

A June 2020 put ratio on the index, with spot near 50: long one 40 put, short two 20 puts. We traded it. Deep out-of-the-money puts were that expensive.

The payoff at expiry

Before premium:

• Above 40: nothing.
• Between 40 and 20: the long put pays, up to 20 points at 20.
• Below 20: the two short puts take the gain back, point for point. The payoff only returns to zero if the index itself goes to zero.

Breakeven at expiry: zero on the index. Every bank in it wiped out.

Where the real risk sat

The risk was never the expiry. It was the path: margin and mark-to-market on two short puts if the panic had gone on. The payoff diagram only describes the last day; the position has to survive every day before it.

The other side of the same panic

In the same weeks, two-year 100/110 call spreads on the index were quoted at a few tens of cents, for a maximum payoff of ten points. We bought those too. In February 2022 the index traded above 115.

What it says

Option prices sometimes tell you more than the index does. In March 2020, downside protection was priced for the end of the system, while two-year upside cost a few tens of cents.

This note also ran as a Reel on 21 October 2026.