Bear Put Spread

Watch the explainer2:53

The Bear Put Spread option trading strategy is employed when the options trader thinks that the price of the underlying asset will go down moderately in the near term.

Bear Put Spreads can be implemented by buying a higher striking in-the-money put option and selling a lower striking out-of-the-money put option of the same underlying security with the same expiration date.

By shorting the out-of-the-money put, the options trader reduces the cost of establishing the bearish position but forgoes the chance of making a large profit in the event that the underlying asset price plummets. The Bear Put Spread options strategy is also known as the bear put Debit Spread as a debit is taken upon entering the trade.

Try the Bear Put Spread Calculator

Limited Downside Profit

To reach maximum profit, the stock price need to close below the strike price of the out-of-the-money puts on the expiration date. Both options expire in the money but the higher strike put that was purchased will have higher intrinsic value than the lower strike put that was sold. Thus, maximum profit for the Bear Put Spread option strategy is equal to the difference in strike price minus the debit taken when the position was entered.

Limited Upside Risk

If the stock price rises above the in-the-money put option strike price at the expiration date, then the Bear Put Spread strategy suffers a maximum loss equal to the debit taken when putting on the trade.

Breakeven Point(s)

Bear Put Spread Example

Suppose XYZ stock is trading at $38 in June. An options trader bearish on XYZ decides to enter a Bear Put Spread position by buying a JUL 40 put for $300 and sell a JUL 35 put for $100 at the same time, resulting in a net debit of $200 for entering this position.

The price of XYZ stock subsequently drops to $34 at expiration. Both puts expire in-the-money with the JUL 40 call bought having $600 in intrinsic value and the JUL 35 call sold having $100 in intrinsic value. The spread would then have a net value of $5 (the difference in strike price). Deducting the debit taken when he placed the trade, his net profit is $300. This is also his maximum possible profit.

If the stock had rallied to $42 instead, both options expire worthless, and the options trader loses the entire debit of $200 taken to enter the trade. This is also the maximum possible loss.

These examples use standard U.S. stock options with a 100-share contract size and matching expiration dates. Related structures can use ETF, index or futures options, but contract multipliers, exercise style, settlement and the underlying price range can differ. A stock’s zero price floor must not be assumed for every futures contract.

Commissions

For ease of understanding, these examples exclude commissions, fees and financing costs. Include all costs when comparing an actual position; there is no universal commission amount.

For active traders, transaction costs can consume a significant part of returns. Compare the full commission and fee schedule, exercise and assignment charges, and bid-ask spreads. The cost of entering and closing every leg matters.

Bear Spread on a Credit

The Bear Put Spread is a Debit Spread as the difference between the sale and purchase of the two options results in a net debit. For a bearish spread position that is entered with a net credit, see Bear Call Spread.

Before expiration and assignment

The diagrams and worked outcomes describe expiration payoffs, not an option’s market price before expiration. Time decay, implied volatility, rates, dividends and bid-ask spreads affect early closing values. American-style short options can be assigned early; a protective long option is not automatically exercised when a short leg is assigned. Closing or exercising one leg can change the remaining position’s risk.