Options Strategy - Bear Put Spread

Introduction

When an investor is moderately berish on the underlying asset. This investor will have a capped profit if the stock price moves lower, however, but the risk is also limited if the stock moves up.

Sentiment Towards the Market

Moderately berish

Family

Vertical Spread

Composition

  • Buys a put at a specific strike price.
  • Simultaneously sells the same number of puts at a lower strike price.
  • Both call options to have the same expiration date and underlying asset.

Example

  • Long 1 XYZ $50 PUT, Expiration: 60 days, Premium (-$300)
  • Short 1 XYZ $45 PUT, Expiration: 60 days, Premium $200
  • Maximum Gain: ($50 - $45) * 100 - $300 + 200 = $400
  • Maximum Loss: -$300 + $200 = -$100

Pay Off Chart

Image of chart

Maximum Gain

  • High Strike Price - Low Strike Price - Net Premium Paid

Maximum Loss

  • Net premium paid