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Bear Put Spread

 Profile Version / Simplified Version / Comprehensive Version


Purpose Of Bear Put Spread


1. To Profit From Falling Stock
2. To Reduce Cost Of Buying Put Options



Expectations Of Bear Put Spread


Down



Type Of Spread


Debit Spread



How To Use Bear Put Spread?


Buy At The Money (ATM) Put Option while simultaneously selling an equal number of Out Of The Money (OTM) Put Option.

Buy ATM Put Option + Sell OTM Put Option 		Bear Put Spread Risk Graph Learn How To Read This Chart



Profit Potential of Bear Put Spread :


This strategy reaches its maximum profit potential when the underlying stock closes at or exceeds the strike price of the OTM put options.

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Profit Calculation of Bear Put Spread:


Maximum Return = (Difference in strikes - Net Debit) ÷ Net Debit



Risk / Reward of Bear Put Spread:


Upside Maximum Profit: Limited

Maximum Loss: Limited
Net Debit Paid



Break Even Point of Bear Put Spread:


BEP: Strike Price of Long Put Option - Net Debit Paid

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Advantages Of Bear Put Spread :



  • Loss is limited if the underlying asset rises instead of fall.

  • If the underlying asset fails to fall beyond the strike price of the out of the money short call option, the profit yield will be greater than just buying put options.

  • It is also a way of buying put options at a discount by selling the out of the money put option at a strike price beyond that which the underlying asset is expected to fall.



    Disadvantages Of Bear Put Spread :



  • There will be more commissions involved than simply buying put options.

  • There will be no more profits possible if the underlying asset falls beyond the strike price of the out of the money put option so profit is limited.


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