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Short Put Vs Bear Put Spread Options Trading Strategy Comparison

Compare Short Put and Bear Put Spread options trading strategies. Find similarities and differences between Short Put and Bear Put Spread strategies. Find the best options trading strategy for your trading needs.

Short Put Vs Bear Put Spread

  Short Put Bear Put Spread
Short Put Logo Bear Put Spread Logo
About Strategy A short put is another Bullish trading strategy wherein your view is that the price of an underlying will not move below a certain level. The strategy involves entering into a single position of selling a Put Option. It has low profit potential and is exposed to unlimited risk. A short put strategy involves selling a Put Option only. For example if you see that the shares of a Company A will not move below Rs 1000 then you sell the Put Option of that stock at Rs 1000 and receive the premium amount. The premium received will be the maximum profit you can earn from this trade. However, if the price of the underlying moves below 1000 then you will incur unlimited losses. The Bear Put strategy involves selling a Put Option while simultaneously buying a Put option. Contrary to Bear Call Spread, here you pay the higher premium and receive the lower premium. So there is a net debit in premium. Your risk is capped at the difference in premiums while your profit will be limited to the difference in strike prices of Put Option minus net premiums. This strategy is used when the trader believes that the price of underlying asset will go down moderately. This strategy is also known as the bear put debit spread as a net debit is taken upon entering the trade. This strategy has a limited risk as well as limited rewards. How to use the bear put spread options strategy? The bear put spread strategy looks like... Read More
Market View Bullish Bearish
Strategy Level Beginners Advance
Options Type Put Put
Number of Positions 1 2
Risk Profile Unlimited Limited
Reward Profile Limited Limited
Breakeven Point Strike Price - Premium Strike Price of Long Put - Net Premium

When and how to use Short Put and Bear Put Spread?

  Short Put Bear Put Spread
When to use?

Short Put works well when you're Bullish that the price of the underlying will not fall beyond a certain level.

The bear call spread options strategy is used when you are bearish in market view. The strategy minimizes your risk in the event of prime movements going against your expectations.

Market View Bullish

When you are expecting the price or volatility of the underlying to increase marginally.

Bearish

When you are expecting the price of the underlying to moderately drop.

Action
  • Sell Put Option

A short put strategy involves selling a Put Option only. So if you see that the shares of a Company A will not move below a 1000 then you sell the Put Option of that stock at 1000 and receive the premium amount. The premium received will be the maximum profit you can earn from this deal. However, if the price of the underlying moves below 1000 than you will incur losses.

  • Buy ITM Put Option
  • Sell OTM Put Option

Breakeven Point Strike Price - Premium
Strike Price of Long Put - Net Premium

The breakeven point is achieved when the price of the underlying is equal to strike price of long Put minus net premium.

Compare Risks and Rewards (Short Put Vs Bear Put Spread)

  Short Put Bear Put Spread
Risks Unlimited

There is no limit to losses incurred in the trade. The risk is when the price of the underlying falls, and the Put is exercised. You are then obliged to buy the underlying at the strike price.

Limited

The maximum loss is limited to net premium paid. It occurs when the price of the underlying is less than strike price of long Put..

Max Loss = Net Premium Paid.

Rewards Limited

The profit is limited to premium received in your account when you sell the Put Option.

Limited

The maximum profit is achieved when the strike price of short Put is greater than the price of the underlying..

Max Profit = Strike Price of Long Put - Strike Price of Short Put - Net Premium Paid.

Maximum Profit Scenario

Underlying doesn't go down and options remain exercised.

Underlying goes down and both options exercised

Maximum Loss Scenario

Underlying goes down and options remain exercised.

Underlying goes up and both options not exercised

Pros & Cons or Short Put and Bear Put Spread

  Short Put Bear Put Spread
Advantages

It allows you benefit from time decay. And earn income in a rising or range bound market scenario.

Risk is limited. It reduces the cost of investment.

Disadvantage

It is a high risk strategy and may cause huge losses if the price of the underlying falls steeply.

The profit is limited.

Simillar Strategies

Bull Put Spread, Covered Call, Short Straddle

Bear Call Spread, Bull Call Spread







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