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What is a bear put spread?

What is a bear put spread?

A bear put spread involves the use of two puts, one sold and one bought, at different strike prices, with the intention of profiting from declines in the underlying stock.

A Bear Put Spread uses two put contracts, one long and one short, in such a way to achieve a maximum profit from modest downward movements in the underlying stock. A long put is purchased a strike price nearer the money that the short put contract.

This allows the investor to limit downside risk and to bolster the profit potential by taking a premium in for the short contract. The short position, being further out of the money, will not be worth as much as the long position, so this is a net debit position at the outset. The investor will not profit unless the stock does decline in price past the breakeven point.

Keywords: portfolio management, puts, options, debit spread, net debit, breakeven price,