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Options Strategies
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Bear Put Spread
| Strategies |
Bear Put Spread |
| Component |
Sell lower strike price/level put, buy higher strike price/level put of the same month |
| Potential Profit |
- When the stock price/index level is below the break-even point
- Limited to the difference between the two strike prices/levels minus the net premium paid
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| Maximum Loss |
Net premium paid |
| Time Value Impact |
Neutral |
| Break-even |
Higher strike price/level minus net premium paid |
| Remarks |
As different from a Bear Call Spread which would result in net premium received, a Bear Put Spread results in net premium paid, as the premium for the lower strike price/level put is lower than that of the higher strike price/level put. |
Example
| Component |
Sell ABC Mar $180 Put, receive $10 and buy ABC Mar $210 Put, pay $30 |
| Net Premium |
Pay $30-$10=$20 |
| Break-even |
$210-$20=$190 |
| Profit when |
Stock price is below $190 |
| Potential Profit |
($210-$180)-$20=$10 |
| Potential Loss |
$20 |
| Time Value Impact |
Neutral |
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