Bear Put Spread
Buying an ITM put and selling a lower OTM put to cut cost while positioning for a decline.
Profit / Loss Diagram
Bear Put Spread at expiration
What is this strategy?
The Bear Put Spread is a two-leg bearish strategy combining the purchase of a put at a lower strike with the sale of a put at a higher strike. It is the bearish equivalent of the Bull Call Spread. It reduces the cost of entry compared with a plain Long Put, though it also caps maximum gains. It suits bearish traders expecting a moderate decline with limited capital.
The structure is inversely symmetric to the Bull Call Spread: you buy a put at the higher strike — the long leg expressing the bearish thesis — and sell a put at the lower strike — the short leg that cheapens entry — both with identical expiration. The net debit is your maximum potential loss. Maximum gain is the strike width minus the net debit, reached if the underlying closes below the sold strike.
The Bear Put Spread is an excellent strategy for traders expecting a price decline but not a catastrophic one. It requires a moderate to significant downward move but does not need the underlying to approach zero. It is popular among income-oriented traders who prefer a balanced risk-reward. Breakeven is calculated by subtracting the net debit from the short strike.
Construction
| Action | Instrument | Strike | Expiration | Example |
|---|---|---|---|---|
| BUY | 1 Put | ATM or slightly ITM | 30-60 DTE | +1 AAPL Jun 175 Put @ $8.00 |
| SELL | 1 Put | OTM (5-10% below) | Same Expiration | -1 AAPL Jun 165 Put @ $3.00 |
Example
Scenario: AAPL trades at $173. You are bearish and expect it to fall to $160–165 within two months.
- Long Put Purchased +1 AAPL Jun 175 Put @ $8.00
- Short Put Sold -1 AAPL Jun 165 Put @ $3.00
- Net Debit $500 (8.00 − 3.00 = 5.00 paid × 100)
- Maximum Gain $500 (175−165 strike width − $500 net debit)
- Maximum Loss $500 (net debit paid)
- Breakeven $170.00 (175 purchased strike − 5 net debit)
- Profit if AAPL = $160 $500 maximum (capped by the sold strike)
The Greeks
The long put carries negative delta, the short put positive. Net is negative but smaller in magnitude than a plain Long Put — roughly −0.30 to −0.50.
The long put loses more value than the short one generates. Theta works slightly against you, but less than on a pure Long Put.
The long put carries higher positive vega, the short lower negative vega. Net is positive but reduced; it benefits from rising volatility.
The long put has positive gamma, the short negative. Net is positive but limited by the short put.
Position Management
- 01 Take Profits at 50–75% If the position captures 50–75% of maximum potential ($250–375 of $500), close both legs. There is no need to wait for expiration to bank the gain.
- 02 Set a Defensive Stop Loss If you are down 50% of the debit ($250 of $500), close the position. Limiting losses matters more than waiting for a recovery.
- 03 Manage Potential Assignment If assigned on the short put, you own 100 shares. Decide: hold and sell covered calls, exit, or exercise your long put.
- 04 Roll Down If price falls significantly, close the current position and open a new spread at lower strikes to capture further downside.
- 05 Monitor Implied Volatility Rises in IV benefit the position (positive vega). In high-volatility markets this structure is more attractive. Consider closing if IV collapses.