|
Direction |
Moderately bearish |
|
Strategy Type |
Capital gain |
|
Legs |
Buy ITM put |
| |
Sell OTM put |
|
Max Reward |
Exercise of long put - exercise of short put - net premium |
|
Max Risk |
Net premium |
|
Time Horizon |
Long or short |
|
Risk Profile |
High |
|
|
|
Payoff Diagram
Description
Steps Involved
Buy one in the money put, sell one out of the money put.
Rational
This spread can be taken when a stock is expected to have a moderate reduction in price.
Investors benefit from moderate reductions in the stock price with this strategy. The bear put spread forgoes the profit associated with very large bearish movements and is resultantly a less costly strategy to take. This is because the premium from the short put offsets the cost of the long put.