Bear Put Spread Strategy
Buy a higher strike put, sell a lower strike put. Defined-risk bearish trade.
What is a Bear Put Spread?
A Bear Put Spread involves buying a higher-strike put and selling a lower-strike put (both same expiration). Reduces cost of bearish exposure vs a naked long put. Max profit when stock drops to or below short strike. Defined risk, defined reward.
When to Use a Bear Put Spread
Use when moderately bearish and want cheaper put exposure. Best in high IV environments. Good for playing expected downward moves without paying full price for puts.
Key Formulas
- Max Profit
- (Width of spread - Net debit) × 100
- Max Loss
- Net debit × 100
- Breakeven
- Higher strike - Net debit
Example Trade
Buy SPY $420 Put for $4, Sell $415 Put for $2. Net debit $2. Max profit $300 (SPY ≤ $415). Max loss $200.
Common Mistakes to Avoid
- Paying too much (net debit > 70% of width)
- Choosing strikes too close (low reward ratio)
- Not exiting when profit target hit
- Holding too long past the move
Related Strategies
Frequently Asked Questions
What is a Bear Put Spread?
A Bear Put Spread involves buying a higher-strike put and selling a lower-strike put (both same expiration). Reduces cost of bearish exposure vs a naked long put. Max profit when stock drops to or below short strike. Defined risk, defined reward.
When should I use a Bear Put Spread?
Use when moderately bearish and want cheaper put exposure. Best in high IV environments. Good for playing expected downward moves without paying full price for puts.
What is the maximum profit and loss for a Bear Put Spread?
Max profit: (Width of spread - Net debit) × 100. Max loss: Net debit × 100.
What is the breakeven price for a Bear Put Spread?
Breakeven: Higher strike - Net debit. Example trade: Buy SPY $420 Put for $4, Sell $415 Put for $2. Net debit $2. Max profit $300 (SPY ≤ $415). Max loss $200.
What are common mistakes when trading a Bear Put Spread?
Common mistakes include: Paying too much (net debit > 70% of width); Choosing strikes too close (low reward ratio); Not exiting when profit target hit; Holding too long past the move.
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