Bear Put Spreads

For BetterTrades investors with a bearish feeling, the bear put spread is a low-risk option trading strategy that comes with limited reward potential when compared to other options trading strategies.

The investor locates a stock they feel bearish about. To implement this option trading strategy, you buy a put at the next in-the-money strike price, then immediately sell a put at the next strike price down. You will make a profit if the stock price goes down or stays the same.

For example, you have found a stock that trades for $46. Maybe it has reached a resistance level and is losing value. To enter the bear put spread, you would buy the $50 put for $7 and sell the $45 put for $5 in premium. Buying the put would cost $700 and selling the put would bring in $500, which leaves a debit of $200. The most you could profit from the trade would be $300, the difference between the two strike prices ($500 per contract) minus the $200 it cost to start the trade. That $200 is also the maximum loss.

Because there are four commissions in this strategy, some bearish investors may prefer to use a bear call spread, which requires only two commissions.

There are many options trading strategies available to BetterTrades students. Under the system developed by Freddie Rick there are strategies that can work under various market conditions. There are covered calls and bull put spreads for bullish market; iron condors and calendar spreads for a neutral market; and bear put spreads and bear call spreads for bearish markets. At BetterTrades, you can find a wealth of strategies that can fit your trading needs.

Bear Call Spreads | Bear Put Spreads | Calendar Spreads | Covered Calls | Iron Condors