Bear Put Spread
Buy a put and sell a lower put to create a lower-cost bearish trade with defined risk and reward.
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What is a Bear Put Spread?
A bear put spread is a two-leg bearish options trade. You buy a put at one strike and sell a put at a lower strike, both with the same expiration. The sold put reduces your cost but caps your maximum profit. It is the bearish counterpart to the bull call spread.
This is a debit spread. You pay to enter. You want the stock to go down. It is a smart way to make a bearish bet without overpaying for a naked long put, especially when implied volatility is elevated.
How to Set It Up
- Buy 1 put at the higher strike price
- Sell 1 put at the lower strike price
- Same expiration date for both legs
- Strike selection: The width between strikes determines your risk and reward. For example, buy the $100 put and sell the $95 put for a $5-wide spread.
- Expiration: 30-60 days out is ideal. You need enough time for the move to happen but do not want to overpay for time value.
The net debit is your total cost and maximum risk.
When to Use This Strategy
Use a bear put spread when:
- You are moderately bearish on a stock
- You want defined risk instead of just buying a put
- Implied volatility is elevated and a naked long put is too expensive
- You have a specific downside target in mind
This is a great trade for stocks that look like they are rolling over. Maybe they broke a key support level or the sector is weakening. You do not need a crash. You just need the stock to move down to your short strike.
Example Trade
Stock XYZ is trading at $100. You think it will drop to $93 in the next 45 days.
- Buy 1 XYZ $100 put for $4.50
- Sell 1 XYZ $95 put for $2.00
- Net debit: $4.50 - $2.00 = $2.50 ($250 total)
- Max profit: ($100 - $95 - $2.50) x 100 = $250
- Max loss: $2.50 x 100 = $250
- Breakeven: $100 - $2.50 = $97.50
If XYZ drops to $93 at expiration, your long put is worth $7 and your short put obligation is $2. Net value is $5 minus your $2.50 cost = $250 profit. That is a 100% return.
If XYZ stays at $100 or goes up, both puts expire worthless and you lose your $250.
Risk and Reward
- Max profit: (Width of strikes - net debit) x 100. In our example, $250. Achieved when the stock is at or below the short strike at expiration.
- Max loss: The net debit you paid. $250. Occurs when the stock is at or above the long strike at expiration.
- Breakeven: Long strike minus net debit. $97.50.
In this example the risk and reward are equal at $250 each, giving you a 1:1 ratio. You can adjust strike widths to change this. Wider spreads give better reward-to-risk but lower probability.
Tips and Common Mistakes
- Do not fight the trend. If the stock is in a strong uptrend, a bear put spread is swimming upstream. Wait for confirmation that the trend is weakening.
- Take profits at 50-75% of max. Do not hold to expiration hoping to squeeze out every last dollar. Close early and free up your capital.
- Watch the short put near expiration. If the stock is between your strikes, you may face early assignment. Close the spread before expiration week to avoid this.
- Match your spread width to your conviction. If you are only slightly bearish, use a narrow spread. Save the wide spreads for high-conviction trades.
Related Strategies
- Bear Call Spread — a credit spread version of a bearish trade, same risk profile but you collect premium upfront
- Long Put — if you want full downside exposure without a cap
- Bull Call Spread — the bullish mirror image of this strategy
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