← IntermediateLesson 13 · 4:35
Bear put spread
Summary
You can build a bear put spread by buying a higher-strike put and selling a lower one, and know what it costs, the most you can make and lose, and where you break even before you pay. It is the mirror of the bull call spread: it only pays if XYZ falls, and it has the same catch between the strikes.
Key terms
- bear put spread
- Buy a higher-strike put and sell a lower-strike put with the same expiry, paying to open, to profit from a fall.
- bear
- Expecting a fall in the stock.
- debit spread
- A spread you pay to open.
- exercise
- Using the right in an option, so a call buys, or a put sells, the shares at the strike price.
Check yourself
Answer each question to see why the right answer is right.
1. You buy the XYZ $100 put for $3.41 and sell the $95 put for $1.41. Where do you break even on the last day?
2. XYZ rises to $110 by the last day. What happens to your bear put spread?
3. With XYZ stuck at $100, what does time do to this spread?
4. XYZ drops to $80. How does the spread compare with the $100 put bought alone?
5. XYZ ends at $97, between your strikes. What can happen?
Finished the video and the quiz? .