Bear Put Spread

Core Thesis

A Bear Put Spread is the defined-risk bearish counterpart of the bull call spread. It buys downside convexity while reducing premium outlay by selling a lower strike put.

Structure

• Long put at higher strike $K_2$.
• Short put at lower strike $K_1$ where $K_2 > K_1$.
• Same expiration; net debit $D$.

Expiration Payoff Mathematics

$$\Pi_T = \max(K_2-S_T,0) - \max(K_1-S_T,0) - D$$

• Max loss: $D$.
• Max profit: $(K_2-K_1)-D$.
• Break-even: $K_2 - D$.

Greek Profile

• Negative delta and positive gamma focused in the strike interval.
• Theta drag exists but is dampened versus a naked long put.
• Net long vega, with lower IV sensitivity than single-leg puts.

Strike and Tenor Design

• Place long strike where downside thesis begins.
• Place short strike near realistic downside target to monetize excess convexity you do not need.
• Typical tenor 20-75 DTE for tactical bearish views.

Management Framework

• Profit-take as spread approaches intrinsic cap.
• Roll lower strikes only if updated thesis supports deeper downside.
• Cut when momentum/volatility regime no longer supports bearish distribution.

Failure Modes

• Selling too-close lower strike and truncating needed downside exposure.
• Entering after crash when put skew/IV already inflated.
• Waiting for max profit while spread value mean-reverts before expiry.

Practical Checklist

• Is expected downside move sufficient to clear $K_2 - D$?
• Is your short strike aligned with realistic target, not arbitrary premium capture?
• Is debit risk acceptable if price stabilizes or rallies?