Bear Put Spread
Composition
Short (sell) one put option with a lower strike price and long (buy) one put option with a higher striker price.
Risk/Reward
Max Reward: Limited profit potential. Limited to the difference between the two strike prices minus the net paid for the position.
Max Risk: Limited risk potential. Limited to the net amount paid for placing the spread. difference between the 2 strike prices minus the net premium received.
Characteristics
The bull put spread is a bullish position. It is a long delta spread and takes advantage of underlying securities such as stocks and EFTs going up. Best used with stocks in a slow grinding uptrend.
The bull put spread is one of the most cost effective methods to get take a bullish position in the markets. The only downfall is the limited gain potential.
The vertical spread is an incredibly durable, flexible and powerful strategy and will most definitely be a widely used weapon in the arsenal of an option trader.
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