Bear Put Spread: Payoff, Breakeven and Example

How a bear put spread works

The strategy has two legs: you buy one put option at a higher strike and sell one put at a lower strike, on the same stock with the same expiration. The put you buy gains as the stock falls. The put you sell pays for part of it, and in return you give up any gain below its strike.

Because you pay to open it, it is a debit spread. It is one of the two ways to build a bear spread: using puts, as here, costs money up front, while the bear call spread uses calls and pays you a credit.

The three numbers that define it

• Max loss is the net debit you paid. You lose all of it if the stock is at or above the higher strike at expiration.
• Max profit is the width between the strikes minus the net debit, reached at or below the lower strike.
• Breakeven is the higher strike minus the net debit.

Where the stock finishes decides the result

• Above the higher strike: both puts expire worthless and you lose the debit.
• Between the strikes: the long put is in the money and the short put is not, so the spread is worth the higher strike minus the stock price.
• Below the lower strike: both puts are in the money and the spread is worth the full width between the strikes.

Bear put spread example

A hypothetical trade with round inputs, so the arithmetic is easy to follow. The option prices come from the Black-Scholes model with the inputs below; real quotes will differ.

That is $619 of possible profit against $381 of risk, about 1.6 to 1. All figures on this page leave out commissions and fees, which lower the profit and raise the breakeven slightly.

Profit and loss at expiration

To try other strikes or prices, open this exact spread in the debit spread calculator and change any input.

Bear put spread payoff diagram

Losses stop at the debit however far the stock rallies, which is the main difference from shorting 100 shares, where a rally has no ceiling on the loss. Gains stop at the lower strike however far the stock falls. Between the strikes the line is straight: each $1 the stock drops adds $100 to a one-contract position.

Why use a spread instead of buying the put

Selling the lower put cuts the cost and cuts how much the position cares about implied volatility. The same example on the day you open it, per contract:

The spread costs 59% as much as the put but keeps only about 20% of its sensitivity to implied volatility. If implied volatility rose 5 points right after you opened, the lone put would gain about $140 and the spread about $25. The case to plan for is the reverse: if implied volatility is high when you open and then falls, for example after an earnings report (see IV crush), the lone put gives back far more than the spread.

That makes the spread a better fit than a lone put when options are expensive. Against a bear call spread it is the other way round: the credit spread gains when implied volatility falls, so high implied volatility favours it. Before choosing, check where implied volatility sits against its own past year with IV rank and IV percentile.

Choosing strikes and expiration

Put the long strike at or near the current price so the spread gains value from the first dollar the stock falls. Put the short strike where you expect the stock to be at expiration: the spread earns the most there, and you are not paying for a move past your target.

A wider spread pays more if the stock really falls, but it costs more and needs a bigger drop to break even. A narrower one is cheaper and breaks even sooner. Moving both strikes below the stock price makes the spread cheaper and more bearish, since the stock has to fall further before it pays anything.

For expiration, the question is how long the move needs. More time costs more but gives the stock room to get there. If you expect the drop within days, a short expiration is cheaper; for a slow drift lower over weeks, buy more time.

How time decay changes as the stock moves

Time decay works against a bear put spread when the stock is above the strikes and for it once the stock is below them. The same 200/190 spread with 20 days left:

Above the long strike, the long put is closer to the money and loses value faster than the short put. Below the short strike it is the other way round, so each day that passes adds value. That is why a stock that falls early and then stalls is a good outcome for this trade.

Managing and closing a bear put spread

How to close it

Close both legs together as one spread order: sell the 200 put to close and buy the 190 put to close. Your broker quotes the spread as a single price, which is what it is worth now. One order avoids being left holding a single leg if the price moves between fills.

When to take profit

In the example, with 20 days left and the stock at $185, the spread is already worth $8.04 of its $10.00 maximum. Holding to expiration can add at most $1.96 a share while leaving 20 days for the stock to bounce. Closing once most of the maximum is in hand gives up a little profit to take that risk off the table.

Rolling or adjusting

If the stock has already fallen to your short strike and you expect more downside, you can roll down: close this spread and open a new one with lower strikes, paid for partly by the profit on the first. If the stock has risen against you and your view has not changed, rolling to a later expiration costs a new debit, so it adds to the amount at risk rather than repairing the trade. Decide the most you will spend on one view before you start.

What happens at expiration

• Stock above $200: both puts expire worthless. There is nothing to do, and the debit is lost.
• Stock between $190 and $200: the 200 put is in the money and is usually exercised, which leaves you short 100 shares at $200, while the 190 put expires. Close the spread before expiration if you do not want that stock position. If the stock closes right at $190, you may not know until the next day whether the 190 put was assigned, so closing before the bell removes that doubt too.
• Stock below $190: your 200 put is exercised and the 190 put is assigned, so you sell 100 shares at $200 and buy 100 at $190. No shares are left, and the $10 difference is the full value of the spread.

Early assignment

Only the short put can be assigned early, and it is most likely when that put is deep in the money with almost no time value left. If it happens you buy 100 shares at $190, which is $19,000, so the account needs the cash or margin for that until the shares are gone; a margin call is possible if it does not have it. You can sell the shares and keep or sell the 200 put, or exercise the 200 put to sell the shares at $200. Exercising locks in the full $10 width but gives up any time value left in the 200 put, so compare the put's market price with its exercise value first.

Bear put spread vs bear call spread

Both are bearish spreads with a fixed maximum loss.

There is no bearish put spread that pays a credit. A put spread opened for a credit is the bull put spread, which profits when the stock stays up. If you want a bearish trade that pays you up front, use the bear call spread.

Other names, and the other kind of put spread

This trade is also called a debit put spread, a long put spread or a bear put debit spread.

"Put spread" on its own can mean either of two trades. The bearish one, bought for a debit, is this page. The bullish one, sold for a credit, is the bull put spread: the same two puts with the sides swapped, selling the higher strike and buying the lower one. The debit spread guide covers the bear put spread alongside its bullish twin, the bull call spread.