Bear Put Spread

A bear put spread, also called a long put spread or put debit spread, buys a put at one strike and sells a put at a lower strike with the same expiration. The sold put lowers the cost of the bought put but caps the profit if the underlying falls below the lower strike. It is a bearish strategy with a defined maximum loss and gain. Traders use it to bet on a moderate decline, and investors use it as a cheaper hedge than buying puts outright.

Construction#

1. Buy a put at a higher strike (often at or near the money).
2. Sell a put at a lower strike (near your downside target).
3. Same underlying and expiration.
4. Pay a net debit.

Payoff at a glance#

Worked example#

As a hedge#

A put spread protects a portfolio within a range of decline at lower cost than a single put.

Why choose a bear put spread#

• Cheaper than a long put, with a closer break even.
• Defined risk, unlike short selling. See Short Selling.
• Muted volatility exposure: buying puts after a selloff is expensive because implied volatility is high; selling the lower put recovers some of that inflated premium. See Volatility Smile and Skew.

Choosing strikes and expiry#

• Long put at or slightly below the current price for responsiveness.
• Short put at a realistic downside target such as support. See Support and Resistance.
• Expiry long enough for the decline to play out; declines can be sudden but often come after delays.

Managing the trade#

• Take profits when the target is reached, before expiration.
• Close before expiry if price sits between the strikes.
• Watch for early assignment on the short put if it goes deep in the money; you would buy shares, still protected by the long put. See Exercise and Assignment.
• Roll down to lower strikes if the decline continues and you stay bearish.

Bear put spread vs bear call spread#

A bear call spread also profits from a decline but is opened for a credit. The two have nearly identical payoffs at the same strikes. Debit spreads benefit when price moves; credit spreads benefit when price simply stays below the short strike. See Bear Call Spread and Vertical Spreads.

Common mistakes#

• Placing the short strike too close, capping profit too early.
• Buying puts and put spreads after big selloffs, when premiums are inflated.
• Using too short an expiry.
• Forgetting the hedge only covers a range.

Frequently asked questions#

What is a bear put spread?#

Buying a put and selling a lower strike put with the same expiry to profit from a moderate decline with limited risk.

What is the break even of a bear put spread?#

The higher strike minus the net debit paid.

When should I use a bear put spread instead of buying a put?#

When you expect a moderate decline to a target and want a lower cost and closer break even, accepting capped profit.

Next, learn to collect premium with a bullish credit spread in Bull Put Spread.