Bear Put Spread: Profiting When Things Head South
Markets don’t climb forever.
Sometimes stocks slip, and when you expect a moderate drop—not a market apocalypse—you don’t need to short everything in sight. Enter the bear put spread, a strategy that lets you bet on downside with limited risk and defined reward.
What Is a Bear Put Spread?
A bear put spread involves two put options with the same expiration date:
- Long put (higher strike): This is your main bearish bet, profiting if the stock goes down.
- Short put (lower strike): This helps offset the cost by collecting premium, but it also caps how much you can make.
In other words, you are paying for insurance against a fall but funding part of it by selling some of the protection back.
Why Use It?
The bear put spread is perfect when you think a stock will drop, but not fall off a cliff. It’s more affordable than buying a single put outright, and it comes with clear boundaries: you know the most you can lose, and the most you can win.
Pros:
- Cheaper than buying a naked put
- Defined risk and reward
- Works for modest bearish outlooks
Cons:
- Profit is capped
- Needs careful strike selection
Example
Say stock XYZ trades at $100:
- Buy a $100 put for $6.
- Sell a $95 put for $2.
Net cost (debit): $4.
Maximum profit: $1 (difference between strikes minus net debit).
Maximum loss: $4 (the debit paid).
If XYZ falls below $95 at expiration, you pocket the max profit.
If it stays above $100, you are out only $2, that is the cost of your ticket to the bearish party.
Bottom Line
The bear put spread is a measured way to play the downside.
You won’t make a fortune if the stock crashes, but you’ll still collect a tidy profit if it slides within your range.
For traders who prefer smart precision over reckless doom predictions, this spread is worth keeping in the toolbox.