BEAR PUT SPREAD
Back to GlossaryDefinition
An options strategy using a long put and a short put at a lower strike to profit from a moderate decline.
Summary
A bear put spread is a moderately bearish options strategy where you buy a put option at a higher strike price and simultaneously sell a put option at a lower strike price, both with the same expiration date. This strategy profits when the underlying stock price declines moderately, but it limits both maximum profit and maximum loss. It's less expensive than buying a put outright because the premium collected from selling the lower strike put helps offset the cost of buying the higher strike put.
Usage Context
Important when studying options strategies, risk management, and moderately bearish market outlooks. Essential for understanding how to limit risk while maintaining profit potential in options trading.
Common Confusions
- Confusing bear put spread with bear call spread (both are bearish but use different option types)
- Thinking you need the stock to fall dramatically for maximum profit (moderate decline is optimal)
- Not understanding that this is a debit spread (you pay money upfront)
- Confusing which put to buy vs. sell (buy higher strike, sell lower strike)
