Bear Put Spread
In short
Buy a higher strike put, sell a lower strike put — cheaper bearish bet
Buy a put at a higher price and sell one at a lower price. The one you sell reduces your cost. You profit if the stock falls, but only down to the lower strike. Cheaper than a naked put.
A bear put spread buys a put at a higher strike and sells a put at a lower strike. Max profit = spread width minus net premium. Max loss = net premium paid. It limits both risk and reward, making bearish bets cheaper.
Formula
Max Profit = (High Strike - Low Strike) - Net Premium; Max Loss = Net PremiumRelated concepts
- Put Option — A put option is like insurance for your stocks. If you own shares and buy a put, you can sell them at the strike price even if the stock crashes. You pay a premium for this protection.
- Bull Call Spread — Instead of buying an expensive call, you buy one call and sell another at a higher price. The second sale reduces your cost. You profit if the stock rises, but only up to the higher strike. Cheaper than a naked call.
- Iron Condor — An iron condor sells both a call spread and a put spread. You collect premium and profit if the stock stays within a range. Think of it as betting the stock won't make a big move. Ideal when you expect a calm, boring market.
- Delta — If a call has delta of 0.5, it gains $0.50 for every $1 the stock rises. Delta 1.0 means the option moves dollar-for-dollar with the stock. At-the-money options typically have delta near 0.5.