Bear Put Spread
Buy a higher-strike put and sell a lower-strike put — a bounded bearish bet with reduced premium.
Bear put spread: buy put(K2) + sell put(K1), where K1 < K2. Net debit = P(K2) − P(K1). Maximum profit = K2 − K1 − net debit (if stock falls below K1). Maximum loss = net debit (if stock stays above K2). Breakeven = K2 − net debit. The short lower put reduces cost but caps the profit at K1. Mirror image of the bull call spread, applied to the put side.
Related Terms
Bull Call Spread
Buy a lower-strike call and sell a higher-strike call — a leveraged bullish bet with limited loss.
Delta (Δ)
The sensitivity of an option's price to a $1 change in the underlying spot price.
Put-Call Parity
The no-arbitrage relationship between European call and put prices: C − P = S·e^(−δT) − K·e^(−rT).