Strategy guide
Bear Put Spread Strategy
A bear put spread buys a higher-strike put and sells a lower-strike put, for a net debit.
Strategy summary
- Market outlook
- moderately bearish, strong bearish
- Risk type
- defined
- Capital requirement
- Net debit × 100 per spread
- Maximum profit
- Width minus debit
- Maximum loss
- Net debit paid
- Theta / vega
- mixed / mixed
- Assignment risk
- low
- Typical use
- Directional downside with a defined cost
Payoff at expiration
- Max profit$740.00
- Max loss-$260.00
- Breakeven$97.40
How Bear put works
It defines the cost and reward of a bearish view and costs less than a long put at the same strike.
Exact option legs
Buy higher-strike put + sell lower-strike put
- BUY 1 × $100.00 put expiring 2026-01-16 at $4.00
- SELL 1 × $90.00 put expiring 2026-01-16 at $1.40
Payoff, breakeven and risk
At expiration the position is worth the intrinsic value of each leg. The maximum profit is $740.00, the maximum loss is -$260.00, and the position breaks even at $97.40.
Worked example
With the underlying at $100.00:
- The spread costs a net debit of 2.60 for a $10-wide structure.
- Maximum loss is $260 and maximum profit is $740 below 90.
- Breakeven is 97.40.
Strike selection
The long strike sets where the position turns bearish; the short strike caps the reward.
Expiration selection
Allow enough time for the decline; short expirations can expire worthless if the move is slow.
Effect of time decay
This structure is mixed on theta: time decay affects the legs differently.
Effect of implied volatility
It is mixed on vega: the legs respond differently to volatility changes.
Effect of stock movement
The position suits a moderately bearish or strong bearish view, and it is tested most when the underlying moves outside the modelled strikes.
Assignment considerations
Assignment risk is low. Short legs can be assigned, especially when they are in the money or before a dividend; long legs have no obligation but can be exercised.
When it works poorly
- Rising markets.
- Low volatility that flattens the move.
- Very short expirations.
Common mistakes
- Paying too much debit for the width.
- Holding through a reversal instead of managing the short strike.
- Ignoring earnings inside the expiration.
Tax caveat
Option outcomes can receive different tax treatment from share trades, and assignment changes the holding period and cost basis. This is general information, not tax advice; confirm your situation with a qualified professional.
FAQ
- What is the maximum profit?
- Width minus the debit.
- How is it different from a long put?
- The short put lowers the cost but caps the reward.
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Theta estimates how much value an option loses per day from the passage of time, all else equal.
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