Bear Put Spread: How It Works, Example and Risks
A bear put spread buys a put and sells a lower-strike put in the same expiration. Traders use it for a moderately bearish view at lower cost. The main risk is losing the net debit if the stock stays above the long strike.
At a glance
| Outlook | bearish |
|---|---|
| Level | intermediate |
| Max profit | (Width − net debit) × 100 |
| Max loss | Net debit × 100 |
| Breakeven | Long strike − net debit |
| Greeks exposure | Negative delta, small theta and vega |
| Ideal IV environment | Low to moderate IV |
Payoff diagram
Worked example
Buy the $100 put for $4.00, sell the $90 put for $1.50: debit $2.50. Breakeven $97.50. Max profit $750 at $90 or below.
How to manage it
- Take profits as price approaches the short strike.
- Exit if the bearish thesis breaks.
- Avoid holding a short ITM put into expiry.
Risks
- Lose the debit if price doesn't fall.
- Capped profit.
- Assignment on the short put.
Questions
When should I use a bear put spread?
When you expect a moderate decline and want defined risk.
What's max profit?
Width minus debit, times 100 — $750 here.
Can I be assigned?
Yes, on the short put, especially if deep ITM.
Related
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