What is a Bear Put Spread? Definition, Payoff, and Example
A bear put spread is a debit spread where a trader buys a put option and sells a lower-strike put option on the same underlying, profiting from a decline in the stock price with defined risk.
What is a Bear Put Spread?
A bear put spread is an options strategy that profits from a decline in the underlying stock price. The trader buys a put option at a higher strike price and sells a put option at a lower strike price, both with the same expiration date. The strategy costs a net debit. The maximum profit is the difference between the strikes minus the net debit, achieved when the stock closes at or below the lower strike. The maximum loss is the net debit paid.
How a Bear Put Spread is Calculated
The net debit is:
Net Debit = Premium of Higher Strike Put − Premium of Lower Strike Put
The maximum profit occurs when the stock closes at or below the lower strike price:
Maximum Profit = (Higher Strike − Lower Strike) × 100 − Net Debit
The maximum loss is the net debit:
Maximum Loss = Net Debit × 100
The breakeven price is:
Breakeven = Higher Strike − Net Debit
The payoff at expiration is:
Profit = Max(0, Higher Strike − Stock Price) − Max(0, Lower Strike − Stock Price) − Net Debit
Worked Example: META
META trades at $500.00. A trader expects the stock to fall over the next 45 days. The trader buys a $500 put for $12.00 and sells a $480 put for $5.00. The net debit is $7.00 per share, or $700 per contract.
Scenario 1: META closes at $470. The $500 put is worth $30. The $480 put is worth $10. The spread is worth $20. The profit is $20 − $7 = $13 per share, or $1,300. This is the maximum profit.
Scenario 2: META closes at $493. The $500 put is worth $7. The $480 put expires worthless. The spread is worth $7. The profit is $7 − $7 = $0 per share. This is the breakeven.
Scenario 3: META closes at $510. Both puts expire worthless. The trader loses the entire net debit of $7 per share, or $700. This is the maximum loss.
When Traders Use a Bear Put Spread
The bear put spread is a bearish directional trade with defined risk. The trader profits from a decline in the stock price, but the profit is capped at the difference between the strikes.
The strategy suits traders who expect a moderate decline. The spread costs less than a naked long put because the short put offsets part of the premium. The short put also reduces the impact of time decay — the short put's theta partially offsets the long put's theta.
Traders use bear put spreads when implied volatility is elevated. Selling the lower-strike put captures some of the high premium, reducing the net cost. The strategy is also common before earnings when a trader expects a negative reaction but wants to limit the cost of the trade.
Limitations and Common Misconceptions
The maximum profit is capped. A trader who expects a crash will not capture the full move below the lower strike. The short put limits the profit.
The spread requires the stock to fall below the higher strike minus the net debit just to break even. A small decline from entry does not guarantee a profit.
A common misconception is that a bear put spread is equivalent to shorting the stock. The spread has defined risk — the maximum loss is the net debit. Shorting stock has unlimited loss potential if the stock rises.
Another misconception is that the short put in the spread creates naked short put risk. The long put at the higher strike fully covers the short put. The maximum loss on the combined position is the net debit, not the full strike price of the short put.