what is a bear put spread 
a bear put spread is a type of options strategy where an investor or trader expects a moderate to large decline in the price of a security or asset and wants to reduce the cost of holding the option trade a bear put spread is achieved by purchasing put options while also selling the same number of puts on the same asset with the same expiration date at a lower strike price the maximum profit using this strategy is equal to the difference between the two strike prices minus the net cost of the options a put option gives the holder the right but not the obligation to sell a specified amount of underlying security at a specified strike price at or before the option expires a bear put spread is also known as a debit put spread or a long put spread the basics of a bear put spreadfor example let s assume that a stock is trading at 30 an options trader can use a bear put spread by purchasing one put option contract with a strike price of 35 for a cost of 475 4 75 x 100 shares contract and selling one put option contract with a strike price of 30 for 175 1 75 x 100 shares contract in this case the investor will need to pay a total of 300 to set up this strategy 475 175 if the price of the underlying asset closes below 30 upon expiration the investor will realize a total profit of 200 this profit is calculated as 500 the difference in the strike prices 35 30 x 100 shares contract 300 the net price of the two contracts 475 175 equals 200 advantages and disadvantages of a bear put spreadthe main advantage of a bear put spread is that the net risk of the trade is reduced selling the put option with the lower strike price helps offset the cost of purchasing the put option with the higher strike price therefore the net outlay of capital is lower than buying a single put outright also it carries far less risk than shorting the stock or security since the risk is limited to the net cost of the bear put spread selling a stock short theoretically has unlimited risk if the stock moves higher if the trader believes the underlying stock or security will fall by a limited amount between the trade date and the expiration date then a bear put spread could be an ideal play however if the underlying stock or security falls by a greater amount then the trader gives up the ability to claim that additional profit it is the trade off between risk and potential reward that is appealing to many traders less risky than simple short sellingworks well in modestly declining marketslimits losses to the net amount paid for the optionsrisk of early assignmentrisky if asset climbs dramaticallylimits profits to difference in strike priceswith the example above the profit from the bear put spread maxes out if the underlying security closes at 30 the lower strike price at expiration if it closes below 30 there will not be any additional profit if it closes between the two strike prices there will be a reduced profit and if it closes above the higher strike price of 35 there will be a loss of the entire amount spent to buy the spread also as with any short position options holders have no control over when they will be required to fulfill the obligation there is always the risk of early assignment that is having to actually buy or sell the designated number of the asset at the agreed upon price early exercise of options often happens if a merger takeover special dividend or other news occurs that affects the option s underlying stock real world example of bear put spreadas an example let s say that levi strauss co levi is trading at 50 on october 20 2019 winter is coming and you don t think the jeans maker s stock is going to thrive instead you think it s going to be mildly depressed so you buy a 40 put priced at 4 and a 30 put priced at 1 both contracts will expire on november 20 2019 buying the 40 put while simultaneously selling the 30 put would cost you 3 4 1 if the stock closed above 40 on november 20 your maximum loss would be 3 if it closed under or at 30 however your maximum gain would be 7 10 on paper but you have to deduct the 3 for the other trade and any broker commission fees the break even price is 37 a price equal to the higher strike price minus the net debt of the trade 