Bear Put Spread

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Bear Put Spread

In options, a strategy in which one buys put options on a security and then sells the same number of put options on the same security with the same expiration month at a lower strike price. A bear put spread limits both the potential profit and the potential risk, but is most profitable if the security drops moderately in price.

References in periodicals archive ?

The strategy that employs a combination of call options is termed 'bear call spread', while the one that uses put options is termed 'bear put spread'.

Bear put spread: This involves buying an ITM put option and simultaneously selling an OTM put option with the same underlying stock/index and expiry date.

The cost in the bear put spread is Rs 2,250, which is the difference between the cost of the put option purchased (50x70=Rs 3,500) and the amount received from selling the put option (50x25=Rs 1,250).