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Bullish Patterns
Long Calls
Bull Call Spread
Bull Put Spread
Call Backspread
Long Call Ratio Spread
Naked Put
Synthetic Long Stock
The Collar
Covered Calls
Synthetic Long Call
Synthetic Short Put
Covered Straddle
Covered Strangle
Married Put
Protective Put

Bearish Patterns
Long Puts
Bear Put Spread
Bear Call Spread
Put Backspread
Long Put Ratio Spread
Naked Calls
Synthetic Short Stock
Synthetic Short Stock (split strikes)
Covered Put
Protective Call
Synthetic Short Call
Synthetic Long Put

Long Volatility
Long Straddle
Long Strangle
Short Call Butterfly
Short Put Butterfly
Short Iron Butterfly
Short Call Condor
Short Put Condor
Short Iron Condor
Long Guts
Strip
Strap
Short Call Ladder
Short Put Ladder
Long Call Synthetic Straddle
Long Put Synthetic Straddle

Short Volatility
Short Straddle
Short Strangle
Long Call Butterfly
Long Put Butterfly
Long Iron Butterfly
Long Call Condor
Long Put Condor
Long Iron Condor
Short Guts
Long Call Ladder
Long Put Ladder
Call Ratio Spread
Short Call Ratio Spread
Put Ratio Spread
Short Put Ratio Spread
Ratio Call Write
Ratio Put Write
Short Call Synthetic Straddle
Short Put Synthetic Straddle
Variable Ratio Write

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Bear Put Spread

Risk: low
Reward: low

General Description
Entering a bear put spread entails buying higher strike puts and selling an equal number of lower strike puts (same expiration month).

(draw a bear put spread risk diagram here)

The Thinking
You're bearish and are confident a stock will move down, but you don't think the stock will completely tank. You buy puts to profit when the stock drops, and then sell lower strike puts to 1) help pay for the long puts and 2) to lower your risk. Your breakeven is more favorable and your max loss potential is lower. If the stock drops, preferably below the lower strike, you'll profit.

Example

XYZ is at $48. You’re bearish and think the stock will move down a few points but not much further. You buy (1) 50 put for $3.50 and sell (1) 45 put for $1.00. The net debit $2.50.

Above $50, all the puts expire worthless, and your loss is the net debit paid when the trade was initiated.

If the stock trades flat and closes at $48, the 50 put will have declined in value from $3.50 to $2.00 ($1.50 loss) and the 45 put will have declined in value from being $1.00 to being worthless ($1.00 profit) for a total loss of $0.50.

If the stock drops to $45, the 50 put will have increased in value from $3.50 to $5.00 ($1.50 profit), and the 45 put will have declined in value from being $1.00 to being worthless ($1.00 profit) for a total profit of $2.50. This is your max profit.

Below $45, the profit from the long put and the loss from the short put cancel each other out.

The PL chart below graphically shows where this trade will be profitable and at a loss.