Bear Put Spread
A bear put spread is a bearish options strategy that involves buying a put at a higher strike price and selling a put at a lower strike price with the same expiration, creating a net debit position that profits when the underlying stock declines moderately.
The bear put spread is the directional counterpart to the bull call spread, designed for traders who anticipate a moderate decline in a stock or index rather than a steep crash. By purchasing a put with a higher strike and simultaneously selling a put with a lower strike — both sharing the same expiration date — the trader pays a net debit and defines both the maximum gain and maximum loss at entry.
As an example, if Tesla (TSLA) is trading at $250 and a trader expects a pullback to around $230, they might buy a $250 put for $7.00 and sell a $230 put for $2.00, resulting in a net debit of $5.00. The maximum profit is $15.00 (the $20 spread width minus the $5.00 debit) if TSLA closes at or below $230 at expiration. The maximum loss is $5.00 if TSLA closes at or above $250. The breakeven price is $245.
The bear put spread is most effective when IV is relatively low at entry because it is a net long vega position. If volatility expands after entry, the spread generally appreciates. However, in high-IV environments — such as during a market correction when put premiums are inflated — the cost of the purchased put is elevated, reducing the overall cost-efficiency of the structure.
Bear put spreads differ from buying puts outright in that they reduce the premium outlay significantly. The sold lower-strike put offsets a portion of the cost, lowering the breakeven and improving the probability of at least partial profitability. The trade-off, as with all spreads, is that the maximum profit is capped at the lower strike regardless of how far the underlying falls.
In U.S. listed equity options, put options are American-style, meaning the buyer of the sold put could theoretically exercise early if the stock falls sharply or the option goes deep in-the-money. This early assignment risk is a practical consideration for bear put spread holders: if the short put is exercised, the trader is assigned 100 shares of stock long per contract and must manage that position accordingly — typically by exercising the long put or selling the assigned shares.