Bear Put Spread How to Video

This video covers the basics of the long put spread. A long put spread involves the purchase of a put option on a particular underlying stock or index, while simultaneously selling another put option on the same underlying with the same expiration month, but with a lower strike price. Another name for this strategy is a bear put spread.

An Example:

Fictitious Stock XYZ @ 100

Buy to Open 1 XYZ 30-day 100 Put
Right to Sell Stock at 100

Sell to Open 1 XYZ 30-day 95 Put
Obligation to Buy Stock at 95

Total Commission $6.25

At expiration (30 days from now)

Max Risk: Net debit paid, plus commissions
Max Profit: Limited to the difference between
strikes (100 – 95 = 5), less the net debit paid, minus commissions

The forecast for the above example is bearish on the underlying stock.

Regards,

Brian Overby

TradeKing Options Guy and Senior Option Analyst www.tradeking.com

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