How Do You Trade A Bear Put Spread?
The bear put spread is a reduced risk trade involving two put options. It is the bearish equivalent of the bull call spread. This spread allows you to offset the cost of one put option through the sale of another. The options in the spread must share the same expiration date, but the option you buy must have a higher strike price than the option you sell. Step 1 Buy a put option. When you think a price drop is imminent, buy a put option at the money or just below the money. For example, assume XYZ stock is currently trading at $20. You expect a price drop, so you buy a put option with a strike price of $19. Step 2 Sell a put option. Sell a put option with a lower strike price to offset some of the cost of the option you buy. In this case, you could sell a put option with a strike price of $15. You will profit from a price drop until the price falls below $15, at which point your options will offset each other. Step 3 Execute Step 1 and Step 2 as a single spread trade. If you use tradin
