What Is a Bear Put Spread?

By Mike Zaccardi, CMT, CFA · May 25, 2023 · 10 minute read

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What Is a Bear Put Spread?

A bear put spread — also referred to as a debit put spread and as a long put spread — is an options trading strategy where a bearish trader purchases a put option at the same time as they sell another put option with a lower strike price and the same expiration date.

Essentially the bear put spread is a long put with the addition of a hedge of a short put to reduce risk. The level of risk is well defined; but it has limited profit potential.

Bear put spreads can be effective when you believe a stock price will fall to a specific level by the option’s expiration date. It is a net debit trade, so the most you can lose is the premium paid. While not as risky as shorting a stock, there is the risk that you will be assigned shares.

Bear Put Spread Definition

A bear put spread is an options strategy in which you purchase a high strike put and sell a low strike put. Like other options strategies, bear put spreads may be traded out-of-the-money (OTM), at-the-money (ATM), or in-the-money (ITM). You pursue this trade when you are bearish on a stock, have a downside price target, and have a time horizon.

The goal is for the underlying asset to be at or below the lower strike by expiration.

The trader will incur a debit (cost) equal to the price of the purchased put option less the price of the sold put option when they enter the trade. An investor loses the entirety of their debit if the underlying stock closes above the strike price of the long put (the higher strike price).

The closer the strike prices are to the price of the underlying asset, the higher the debit payment is. But a higher debit also means a higher potential profit.

💡 Quick Tip: Options can be a cost-efficient way to place certain trades, because you typically purchase options contracts, not the underlying security. That said, online options trading can be risky, and best done by those who are not entirely new to investing.

How Does a Bear Put Spread Work?

First, a refresher on the two basic types of options: puts and calls. Options are a type of derivative that may allow investors to gain — not by owning the underlying asset and waiting for it to go up, but by strategically using options contracts to profit from the asset’s price movements.

For example, a bear put spread is one of many strategies for options trading. With a bear put spread the investor profits from a decline in the underlying stock price. It is not as bearish as buying puts outright since you are also selling a put. It also comes with lower risk than selling a put.

In options terminology, gains are maximized when the underlying asset trades at or below the lower strike price. A bear put spread is cheaper to put on since the sale of the lower strike put helps finance the trade.

Losses are limited to the debit (cost) incurred when the trade is entered. Those losses will be incurred if the underlying asset price closes above the strike price of the long put (higher strike price) at expiration.

Recommended: Bull vs Bear Markets

Maximum Profit

A bear put spread’s maximum profit is:

Width of strike prices – Premium (debit) paid

Maximum Loss

A bear put spread’s maximum loss is:

Premium paid

Break even

The break even point for a bear put spread is:

Strike price of the long put (higher strike) – Premium paid

Bear Put Spread Graph: Payoff Diagram

The profit and loss diagram below illustrates a bear put spread’s payoff. Assume a $100 strike put is bought at $4 and a $95 strike put is sold at $2. The break even in this example is $98 – the $100 strike minus the $2 net debit. Here’s where knowledge of the Greeks in options trading is key.

Bear Put Spread Payoff

Recommended: How Are Options Priced?

Impact of Price Changes

As the price of the underlying asset falls the bear put spread rises, and as the asset price rises the bear put spread value falls. The position is said to have a negative Delta since it profits when the underlying stock price falls.

Due to the dual-option structure of this trade, the rate of change in delta, known as Gamma, is minimal as the underlying asset price changes.

Impact of Volatility

The impact of volatility is minimized due to the dual option structure of the trade. Vega measures an option’s sensitivity to change in volatility. Between the short put and long put, the trade has a near-zero vega.

However, asset price changes can result in volatility affecting the price of one put more than the other.

Impact of Time

The impact of time decay, also known as theta, varies based on the asset price relative to the strike prices of the two options.

When the asset price is above the long put strike price, the value of the bear put spread decreases as time passes due to the long put decreasing in value faster than the short put.

When the asset price is below the short put strike price, the value of the bear put spread increases as time passes due to the short put decreasing in value faster than the long put.

When the asset price is between the strike prices the effect of theta is minimal as both options decay at the same rate.

Closing Bear Put Spreads

It’s generally a good strategy to close out a bear put spread before it expires, if it is profitable. If it has reached its maximum possible profit, the position should be closed out to capture the maximum gain.

Another reason to close a bear put spread position as soon as the maximum profit is reached is due to the risk of your short put being assigned and exercised. To avoid this situation you may close the entire bear put spread position, or keep the long put open and buy to close the short put.

If the short put is exercised a long stock position is created. You can close out the position by selling the stock in the market to close out your long position, or exercise the long put. Each of these options will incur additional transaction fees that may affect the profitability of your trade, hence the need to close out a maximum profit position as soon as possible.

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Pros and Cons of Bear Put Spreads



Not as risky as a short sale of stock You might be assigned shares
Works well with a moderate-to-large stock price drop Losses are seen when the stock price rises
Maximum loss is limited to the net debit Profits are capped at the low strike

Bear Put Spread Example

Shares of XYZ stock are currently trading at $100. You believe that the shares will decrease to $95 by the following month’s option expiration date. To enter into a bear put spread, you could purchase a $100 put for $4.00 at the same time as you sell a $95 put for $2.00. The sale of the low strike option helps to make your bearish wager less expensive since you collect that premium while paying for the high strike put option.

The maximum loss and net debit for this bear put spread is:

Premium paid = Cost of Long Put – Cost for Short Put

Premium paid = $4.00 – $2.00 = $2.00 net debit

Note: The $2.00 net debit is per share. Since an option contract is for 100 shares, the debit will be $200 per option contract.

The maximum profit for this bear put spread is:

Maximum profit = Width of strike prices – Premium paid

Maximum profit = $100 – $95 – $2.00 = $3.00 per share or $300 per option contract

The break even point for this trade is when the stock price reaches:

Break even = Strike price of long put – Premium paid

Break even = $100 – $2.00 = $98.00

Bear Put Spread vs Bear Call Spread

A bear put spread differs from a bear call spread — also known as a short call spread – in that the latter uses call options instead of put options. A bear call spread features a short call at a low strike and a long call at a higher strike. This strategy has a slightly different payoff profile compared to a bear put spread.

A bear call spread opens at a net credit, meaning proceeds from the sale of the low strike call are larger than the payment for the purchase of the long call at a higher strike. The maximum profit is limited to the net credit received when opening the trade.

The maximum loss on a bear call spread is limited to the difference between the low strike option and the high strike option, minus the credit received. The stock price is usually below the low strike when the trade is established.

The primary difference is that a bear call spread doesn’t require the underlying stock to decline to turn a profit. A flat stock price by expiration allows you to simply keep your net credit. In contrast, a bear put spread is done at a net debit, so the stock must fall to make money with a bear put spread.

Bear Put Spread

Bear Call Spread

Buying a high strike put and selling a low strike put Buying a high strike call and selling a low strike call
Done at a net debit Done at a net credit
Underlying stock price must drop to make a profit Underlying stock can be neutral and still make a profit
Max loss is the premium paid Max gain is the premium received

When to Consider a Bear Put Spread Strategy

You should consider constructing a put bear spread when you are bearish on a stock and have a specific price target.

For example, if you believe XYZ stock will dip from $100 to $90, a bear put spread makes sense. You could buy the $105 put and sell the $90 put at a net debit.

If the stock indeed falls to $90 by the expiration date, then you keep the premium from the low strike short put and profit from a higher value on the high strike long put.

It also helps to have a timeframe in mind since you must choose your option’s expiration date.

Finally, a bear put spread should be considered when you have a bearish near-term outlook on a stock and seek to keep your capital outlay small.

A collar is another protective options strategy. You can learn about how collars work in options.

The Takeaway

Bear put spreads are used to place bearish bets on a stock. Executing a bearish outlook on a stock, while keeping costs in check, along with a defined maximum loss, are some of the benefits to a bear put spread.

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What is a bearish options strategy?

A bearish options strategy is an option trade betting that the underlying asset price will decline. If you are bullish, you believe an asset price will rise.

What is the maximum profit for a bear put spread?

The maximum profit for a bear put spread is the difference between the strike prices minus the premium paid.

Maximum profit = long put strike price – short put strike price – premium paid

What does it take for a bear put spread to break even?

A bear put spread strategy breaks even at expiration when the stock price is below the high strike by the amount of the net premium paid at the trade’s initiation.

Break even = long put strike price – premium paid

Photo credit: iStock/MicroStockHub

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