Bear Put Spread

Psychology:

The put bear spread is used when the investor believes that the underlying asset’s share price will decline significantly in the short term. For this strategy the investor purchasing in-the-money put options that have a high exercise price and selling an out-of the-money put option that has an exercise price that is lower. For this scenario the options are associated with the same underlying asset and the contracts expire at the same time. The benefit of using the put bear spread is that less money is invested for the opportunity to hold a bearish position.

Risk / Reward:

Maximum Loss: Limited to the total premium paid plus the total commissions paid.

Maximum Gain: Limited to the difference of the two exercise prices minus the total amount paid for the option contract.