Bear Put Spread
Buy 1 ITM Put / Sell 1 OTM Put
The Bear Put Spread is an option strategy with both limited upside profit potential and limited downside risk of loss. Buyers of Bear Put Spreads believe the underlying equity will drop in price before option expiration.
Compared to buying a Long Put, Bear Put Spreads can be significantly less expensive and an attractive choice during periods of high volatility when options are priced at a premium.
Consider the following hypothetical example for a stock trading at $27.52.
A $2 bear put spread (buying the $28 put and selling the $26 put) can be purchased for $0.67 for the current month. A profit is realized if the stock trades below $27.33 at option expiration; profit potential is limited to the spread price less the premium paid ($133.00). Above $28.00, a maximum loss is realized equal to the option spread price paid.
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The opposite of this strategy is the Bull Call Spread.
