# Bear Put Spread

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## Definition of 'Bear Put Spread'

A bear put spread is a bearish options strategy that involves selling one put option and buying another put option with a lower strike price. The difference between the strike prices is the maximum profit potential of the trade. The maximum loss is limited to the premium paid for the long put option.

To enter into a bear put spread, an investor would first sell a put option with a higher strike price and then buy a put option with a lower strike price. The difference between the strike prices is the net premium received for the trade. The investor would want the price of the underlying asset to fall below the strike price of the short put option, but not below the strike price of the long put option. If the price of the underlying asset falls below the strike price of the short put option, the investor will be assigned on the short put option and will be required to sell the underlying asset at the strike price. The investor will then use the long put option to buy the underlying asset at the lower strike price, locking in a profit on the difference between the two strike prices.

The maximum profit potential of a bear put spread is the difference between the strike prices minus the premium paid for the trade. The maximum loss is limited to the premium paid for the long put option. The breakeven point is the strike price of the long put option.

A bear put spread is a relatively low-risk strategy, but it also has a limited profit potential. The strategy is most effective when the underlying asset is expected to fall in value, but not by a large amount.

To enter into a bear put spread, an investor would first sell a put option with a higher strike price and then buy a put option with a lower strike price. The difference between the strike prices is the net premium received for the trade. The investor would want the price of the underlying asset to fall below the strike price of the short put option, but not below the strike price of the long put option. If the price of the underlying asset falls below the strike price of the short put option, the investor will be assigned on the short put option and will be required to sell the underlying asset at the strike price. The investor will then use the long put option to buy the underlying asset at the lower strike price, locking in a profit on the difference between the two strike prices.

The maximum profit potential of a bear put spread is the difference between the strike prices minus the premium paid for the trade. The maximum loss is limited to the premium paid for the long put option. The breakeven point is the strike price of the long put option.

A bear put spread is a relatively low-risk strategy, but it also has a limited profit potential. The strategy is most effective when the underlying asset is expected to fall in value, but not by a large amount.

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Copyright © 2004-2023, MyPivots. All rights reserved.