Bearish options strategy
Bear put spread
Buy a put and sell a lower put. A cheaper bearish trade with profit capped at the lower strike.
BearishAny IVDefined riskLevel 3 · Buying options
Bear put spread payoff
An example on a $100 stock with 30% implied volatility. The dashed line is the profit or loss at expiry; the solid line is what the position is worth today.
The trade
Buy 1 $104 put · 45 days · $6.24
Sell 1 $96 put · 45 days · $2.25
Net debit $399
Max profit$401
Max loss−$399
Break-even$100.01
Chance of profit50%
How it works
- You pay a net debit, the most you can lose.
- Most you can make: width between strikes minus the debit.
When to use it
- You expect a moderate drop to a target price.
Managing the trade
- Put the short strike near your downside target.
Risks
- Losing the debit if the stock stays above the long put.