A bear put spread means buying a put at a higher strike and selling a put at a lower strike with the same expiry. It profits if the underlying falls, with both the risk and the reward capped.
Example
The underlying trades at 500. You buy the 500 put for 14 and sell the 480 put for 6. Net cost is 8.
- Maximum loss: 8, if the price stays above 500.
- Maximum profit: 20 – 8 = 12, if the price ends below 480.
- Break-even: 492.
When it fits
Use it when you expect a moderate decline, not a crash. It is also a cheaper way to hedge a portfolio over a specific range than buying puts outright.
Things to watch
- If the short put goes deep ITM, early assignment is possible on American-style options.
- Close the spread before expiry if the price is between the strikes, to avoid settlement surprises.
This article is for education only and is not financial advice. Options involve risk and are not suitable for every investor.