The Bear Put Spread Strategy

The bear put spread is a strategy that allows you to profit as a stock goes down or even sideways. It involves buying and selling puts.

When you create this spread you sell an in the money put and buy a deeper in the money put on the same security. For example, you sell an $85 put for $10 and buy the $90 put for $14. From this you spend $4 initially.

If the stock stays below $85 we will be called and forced to buy the stock at $85. But because we bought the $90 call we will be able to sell it at $90, making us $5.

Max Profit

Your max profit on a bear call spread is the difference between the strike prices minus what you paid for the options. In the above example the difference between the strike prices, is $5 and we paid $4 to enter the trade.

So our max profit would be $1. You would realize your max profit as long as the stock stays below the strike price you sold. In this example that is $85.

Max Loss

The max loss on a bear call spread is the money you initially spend entering the trade. In this example it is $4.

Probabilities

This is a high probability trade because the stock only needs to stay below $85 to be profitable.