Bear Put Spread
Put Debit Spread
A Bear Put Spread is a particular options strategy where one simultaneously buys a put (long) and sells a put (short). As the name implies, it is a directional strategy that pays when the asset goes down.
- Different strike prices and expiry dates
- Typically consists of simultaneously buying a long call and short put option.
- Directional strategy
Specifically, a bear put spread is the following two-part strategy: - Buy a put with a higher strike (typically near the money or slightly out of the money) - Sell a put with the lower strike and at the same expiry
Long Put vs. Bear Put Spread: Reducing capital at risk A bear put spread reduces the net risk of the trade compared to a long put strategy. The price of purchasing a put option with a higher strike price is compensated by selling a put option with a lower strike price.
The capital at risk for either a long put or a bear put spread is the amount paid upfront for the option or option bundle respectively. When compared to buying a long put alone, the net capital spending is smaller for the bear put spread.