Bear put spread

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In finance, a bear put spread is a limited profit, limited risk options trading strategy that can be used when the options trader is moderately bearish on the underlying security. It is entered by buying higher striking in-the-money put options and selling the same number of lower striking out-of-the-money put options on the same underlying security and the same expiration month.

The options trader hopes that the price of the underlying drops, maximizing his profit when the underlying drops below the strike price of the written option, netting him the difference between the strike prices minus the cost of entering into the position.

[edit] References

• McMillan, Lawrence G. (2002). Options as a Strategic Investment, 4th ed., New York : New York Institute of Finance. ISBN 0-7352-0197-8. 

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