Bear Put Spread | Options Strategy

A simple options strategy for bearish markets →

Hey there!

Bringing to you an options strategy for bearish markets - the Bear Put Spread.

➡️  A Bear Put Spread can be applied when we expect markets to depreciate and trade within a range below the current price.

➡️ It is implemented by buying an at-the-money put option and selling an out-of-the-money put option, both with the same expiration date.

➡️ The maximum loss will be restricted to the net premium paid, while the profit will be capped at the difference between the bought and sold put strikes, less the net premium paid.

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Let’s understand the bear put spread strategy with the help of an example:

➡️ Assume we take the following positions in a NIFTY50 option as of 11th Sept 2023:

  • Buy a 20,000 put option for ₹176.10

  • Sell a 19,900 put option for ₹136.10

Considering, a lot size of 50, the net premium of this position is losing ₹40 per lot (136.10 - 176.10).

Let’s look at the payoff of such a position:

This position would yield a maximum profit of ₹3,000 while the loss would be restricted to ₹2,000. Hence, the breakeven price stands at 19,960. Assuming it’s 11th Sept 2023 & the spot price is 19,929, the position is in the money.

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None of the above are intended as recommendations. Please consult a registered advisor before buying/selling.

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