BEAR PUT SPREAD: Options Trading Strategy

Bear Put Spread (BUY PUT + SELL PUT)

Establishing a bear put spread involves the purchase of a put option on a particular underlying stock, while simultaneously writing a put option on the same underlying stock with the same expiration month, but with a lower strike price. Both the buy and the sell sides of this spread are opening transactions, and are always the same number of contracts. This spread is sometimes more broadly categorized as a "vertical spread". The bear put spread, as any spread, can be executed as a "package" in one single transaction, not as separate buy and sell transactions.

Market Scenario: Moderately Bearish to Bearish

Risk: Limited

Reward: Limited

BEP: Strike Price of Purchased Put - Net Debit Paid

EXAMPLE:

Entry:

SPOT

5000

                        

	STRIKE	PREMIUM
BUY PUT	4900	60
SELL PUT	4800	30

BEP = 4900 - 30 = 4870

On Exit if:

SPOT	BUY PUT PAY-OFF	SELL PUT PAY-OFF	STRATEGY PAY-OFF
4600	240	-170	70
4700	140	-70	70
4800	40	30	70
4870	-30	30	0
4900	-60	30	-30
5000	-60	30	-30
5100	-60	30	-30
5200	-60	30	-30
5300	-60	30	-30
5400	-60	30	-30

Bear Put Spread - Strategy Pay-Off