Bear Put Spread
Bear Put Spread – Buy ATM (higher strike price) Puts and sell OTM (lower strike price) Puts in moderately Bearish markets that are trending down or reaching new lows with 45 days to 90 days until expiration.
Entry Rules
Bearish expectations for the underlying asset.
Pay no more than $2 for a $5 spread, and $4 for a $10 spread, including commissions.
Exit Rules
- Close position if it falls to 60% of purchase price.
- Close position 30 days to expiration.
- Evaluate position at 90-100% profit.
If you are still Bearish, close 50% of position to take your money off the table.
Close out the remainder of position at 75% – 80% of maximum spread.
Profit & Loss Calculations
Maximum Risk – Limited to the net debit paid for the spread
Maximum Profit – Limited to difference in strike prices – net debit paid
Breakeven – Higher Put strike price - net debit paid
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