Bear put spread

Buying a put and selling a lower-strike put — a defined-risk, moderately bearish debit trade.

A bear put spread is a defined-risk way to bet that a stock will fall. You buy a put at a higher strike and sell another put at a lower strike, both with the same expiration. The put you sell partly pays for the one you buy, so the trade costs less than owning a put outright. In exchange, you cap how much you can make: your profit stops growing once the stock drops below the lower strike.

Say a stock trades at 100 and you expect it to drift down. You might buy the 100 put and sell the 90 put for a net debit of, say, 3.50 per share. Your maximum loss is that 3.50, and your maximum gain is the 10-point spread minus the debit, or 6.50, reached if the stock closes at or below 90 at expiration.

The common mistake is treating it like a long put and expecting a home run. Because the short put caps the upside, a huge crash below 90 earns you nothing extra. It works best when you have a modest, specific downside target rather than an open-ended crash thesis, and when you want to soften the theta bleed a lone put would suffer.

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Educational use only. Quotes are delayed ~15 minutes and nothing here is financial advice. Options trading involves substantial risk of loss.