BEAR PUT SPREAD
Overview
Buy a higher-strike put and sell a lower-strike put in the same expiration. You pay a net debit; profits from a moderate decline in the stock. The sold put reduces the cost versus a naked long put but caps your maximum gain.
What it does
You're buying downside exposure cheaply by selling a lower put to help fund it. The sold put caps your profit at the lower strike but significantly reduces the cost of the trade. You benefit from a moderate decline — not a catastrophic crash, not a flat or rising market. It's the most cost-efficient way to express a moderately bearish thesis.
Structure
buy 1 put + sell 1 put
Setup
- 1.Choose a stock you expect to decline moderately.
- 2.Buy 1 Put at a higher strike (at or near the current price).
- 3.Sell 1 Put at a lower strike (your downside target).
- 4.Same expiration — 30–60 days is typical.
- 5.Verify the order is a net debit; max loss = debit paid, max profit = spread width minus debit.
Max profit
(Higher Strike − Lower Strike − Net Debit) × 100. E.g., AAPL: ($180 − $165 − $3.75) × 100 = $1,125.
Max loss
Net Debit Paid. E.g., $3.75 × 100 = $375.
Breakeven
Long Put Strike − Net Debit. E.g., $180 − $3.75 = $176.25.
When to use
When you're moderately bearish and want defined-risk downside exposure at a lower cost than a naked long put.
When to avoid
When you expect the stock to stay flat or rally. For a large crash, a naked long put captures more profit.
Example trade
Stock: AAPL at $180 Buy 1 AAPL $180 Put at $5.25 Sell 1 AAPL $165 Put at $1.50 Net Debit: $3.75 ($375) Expiration: 45 days Max Profit: ($180 - $165 - $3.75) × 100 = $1,125 Max Loss: $375 (the debit paid) Breakeven: $180 - $3.75 = $176.25 If AAPL falls to $160: Max profit = $1,125 (capped at $165) If AAPL stays at $182: Both puts expire worthless, loss = $375
Common mistakes
- ×Choosing a lower (short) strike too close to the upper strike — minimal profit potential with full debit cost.
- ×Buying the spread too far out-of-the-money — requires an enormous decline to profit.
- ×Entering when IV is already elevated after a large decline — you pay inflated premium.
- ×Holding for a recovery that never materializes while theta erodes the position.
- ×Confusing the direction — a bear put spread profits from declines, not rallies.
FAQ
Why use a bear put spread instead of just buying a put?
A bear put spread costs significantly less than a standalone long put because the sold lower put offsets some premium. The tradeoff is capped profit at the lower strike.
When should I take profits on a bear put spread?
Consider closing at 50–80% of maximum profit rather than waiting for expiration — this removes the risk of the stock recovering and erasing gains.
Can I lose more than I paid?
No. Maximum loss is always the net debit paid, regardless of how high the stock rises.