A Bear Put Spread is a type of options strategy used when an investor expects a moderate decline in the underlying asset’s price. It involves two put options:
- The investor buys a put option with a higher strike price.
- Simultaneously, the investor sells a put option with a lower strike price on the same underlying asset and with the same expiration date.
The income from selling the lower strike put helps offset the cost of the higher strike put, reducing the net investment. The maximum profit is achieved if the underlying asset’s price falls below the lower strike price. The strategy limits both potential gain and potential loss.