Bear Put Spread

A bear put spread comprises one long put with a high strike price and one short put with a low strike price. Both of them have the identical stock and the same expiry date. A bear put spread is formed for a net debit and profits as the underlying stock decreases in price. Profit is low if the stock price declines below the strike price of the short put lower strike, and possible loss is limited if the stock price rises above the strike price of the long put.

Maximum profit

This highest profit is achieved if the stock price is below the strike price of the short put at expiry. Short puts are usually allowed at expiration when the stock price is below the strike price. 

Maximum risk

The highest risk is equal to the cost of the spread containing commissions. A loss of this capital is realized if the position is held to expiry and both puts expire worthless. Both puts will expire useless if the share price at expiration is above the strike price of the long put (higher strike).

When to use Bear Put Spread strategy?

The bear put spread options strategy is used when you are bearish in market view. The strategy decreases your risk in the case of main movements going opposite your prediction.