Bear Put Spread
Structure bearish trades with limited risk using bear put spreads
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Bear Put Spread
Not every trade is bullish. When you think a stock is heading lower, the bear put spread gives you a clean, defined-risk way to profit from the decline.
The Structure
You buy a put at a higher strike and sell a put at a lower strike, same expiration. The long put gives you downside exposure. The short put reduces your cost but caps your profit.
This is a debit spread — you pay to enter. The net debit is your max loss. The width of the strikes minus the debit is your max profit.
Real Example
NFLX is at $620 and you think it is heading to $590 after a weak earnings preview. You are bearish but you do not want to risk $2,000 on a naked put.
- Buy the $620 put for $18.00
- Sell the $600 put for $10.00
- Net debit: $8.00 ($800 per spread)
Max loss: $800 — the debit paid Max profit: $1,200 — width ($20) minus debit ($8) Breakeven: $612 — long strike minus debit
If NFLX drops to $600 or below by expiration, you pocket $1,200. If it stays above $620, you lose $800. That is a 1:1.5 risk-to-reward ratio.
Compare that to the naked $620 put at $18.00 — you would need NFLX below $602 just to break even. The spread breaks even at $612, a full $10 less movement required.
Why Not Just Short the Stock?
Shorting NFLX at $620 means unlimited risk if it rips higher. You also pay borrow fees and need significant margin. A bear put spread risks exactly $800. You know the worst case before you click buy.
Also, short stock positions can get squeezed. You can get margin called. With a spread, your broker knows your max loss on day one. No surprises, no margin calls, no sleepless nights.
Strike Selection
At-the-money long strike: Buy the put near the current stock price. This gives you the highest delta and the most responsive position. The example above used an ATM long put.
In-the-money long strike: If NFLX is at $620, buying the $630 put means your long leg already has intrinsic value. The spread costs more but has a higher probability of profit.
Width matters: A $620/$610 spread is narrow — cheaper but needs precision. A $620/$590 spread is wide — costs more but offers a much bigger payout if the stock tanks. Match the width to how far you think the stock can drop.
Ideal Conditions
Bear put spreads work well when:
- You have a specific bearish catalyst (earnings miss, sector weakness, broken support level)
- IV is moderate — not sky-high, which inflates your debit
- You expect a $10 to $30 move lower on a $200 to $600 stock
- You want to risk hundreds, not thousands
They are less effective in low-IV environments where the puts are cheap anyway. If a naked put only costs $3, a spread might cost $1.50 and your risk-reward is not that different from just buying the put.
Managing the Position
Profit target: If you are up 50% on the debit, consider closing. You paid $8, the spread is now worth $12, take the $400 profit. The last few dollars of a spread are the hardest to capture because you need the stock to stay below the short strike through expiration.
Stop loss: If the stock rallies and the spread drops to $4 (50% of your debit), reassess. Has your thesis changed? If the stock broke above resistance, your bearish case may be dead.
Time management: With 10 days left and the stock between your strikes, the position becomes very sensitive to small moves. Decide if you want that coin-flip risk or lock in whatever value remains.
A Common Bear Put Setup
Here is a setup that works well in practice. Stock breaks below the 50-day moving average on heavy volume:
- Buy the ATM put (or the first in-the-money strike)
- Sell a put $10 to $20 lower (where you think support lives)
- Target 30 to 45 days to expiration
- Close at 50% profit or if the stock reclaims the moving average
This systematic approach removes emotion. You have entry rules, a profit target, and a stop loss. That is a trade plan, not a gamble.
Watch Out For
Buying after a big drop. If the stock already fell 10%, puts are expensive and IV is elevated. You are paying up for a move that might already be priced in.
Expiration risk. If the stock is between your strikes at expiration, you could end up assigned on the short put and exercising the long put. Close spreads before expiration to avoid this.
The bear put spread is the mirror image of the bull call spread. Same logic, opposite direction. Add it to your toolkit and you can trade both sides of the market with confidence.