Put Bear Spread
Components
Short one put option at a lower strike price and long one put option at a higher strike price.
Risk / Reward
Maximum Loss: Limited to the net amount paid for the spread. I.e. the premium paid for the long position less the premium received for the short position.
Maximum Gain: Limited to the difference between the two strike prices minus the net paid for the position.
Characteristics
When to use: When you are bearish on market direction.
A Put Bear Spread has the same payoff as the Call Bear Spread as both strategies hope for a decrease in market prices. The choice as to which spread to use, however, comes down to risk/reward.
A good tip is to compare the market prices of both spreads to determine which has the better payoff for you.
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