A bear put spread is the bearish mirror image of a bull call spread. You buy a put to profit from a decline, then sell a lower-strike put to pay for part of it. The trade gets cheaper, and in exchange your profit stops at the lower strike.
How it’s built
Two puts on the same stock, with the same expiration:
- Buy a put at a higher strike, usually near the current price.
- Sell a put at a lower strike, around where you think the stock will bottom out.
The put you sell offsets part of the cost of the one you buy. What you pay overall is the net debit.
Max profit, max loss and break-even
| Bear put spread | |
|---|---|
| Max profit | (Higher strike − lower strike) − net debit, if the stock finishes at or below the lower strike |
| Max loss | The net debit, if the stock finishes at or above the higher strike |
| Break-even at expiration | Higher strike − net debit |
Worked example
Apple ($AAPL) is at $150, and you think it’s heading lower. You buy the $150 put for $5 and sell the $130 put for $2. Net cost: $3 a share, or $300.
- Break-even: $150 − $3 = $147.
- AAPL at $130 or lower: the spread is worth its full $20 width. Profit: $20 − $3 = $17 a share, or $1,700. That’s the most it can make, even if Apple falls to $100.
- AAPL at $150 or higher: both puts expire worthless and you lose the $300.
So you’re risking $300 to make up to $1,700.
Another one: Tesla ($TSLA) at $250, and you expect a drop to about $230 within a month. Buy the $250 put for $8, sell the $230 put for $3. Net cost $5 ($500). At $230 or below, you make the maximum $15 a share ($1,500).
When it makes sense
- You’re bearish, but expect a moderate decline rather than a collapse.
- You want to cut the cost of buying puts outright.
- You’re fine capping your profit for a cheaper, defined-risk trade.
What to watch out for
- The cap. If the stock crashes far below your short strike, you don’t benefit from the extra drop.
- Time decay. The spread still needs the stock to fall before expiration.
- The break-even. The stock has to drop below the higher strike minus the debit before you profit.
Tips
- Put the short strike at a realistic target, like a support level, not the most bearish case you can imagine.
- Close early if the move comes fast. Once most of the max value is there, the last few dollars rarely justify the risk of a bounce.
- Compare it with a plain put. If you think a real crash is coming, the cap may cost you more than the cheaper entry saves. See the long put.