Posted on March 3rd, 2010 
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Delta
When identifying trades it is essential to look at the delta of the option legs. In particular it is important to calculate the net delta of the bear put spread. The net delta is calculated by the delta of the bought put option minus the delta of the sold put option. The net delta of a bear put spread is always negative. The net delta indicates if the share price decreases quickly what the value of the bear put spread will be worth. For example, if a bear put spread had a net delta of -0.30, and the share price decreased by $2.00, the bear put spread would have increased by 60 cents.
Vega
The volatility affect on a bear put spread is varied. When looking to enter a bear put spread you look to buy an at-the-money put option. The idea is to buy a put which has a relatively low volatility and therefore trading at its theoretical value. The sold put is sold out-of-the-money and the aim to sell puts with higher volatility so you receive a larger premium. The strategy can be traded with high volatility as the volatility does not affect this trade as much as buying a put option. This is because the high volatility is priced into both the bought and sold call options.
Theta
The effect of time decay on this strategy varies with the underlying stock’s price level in relation to the strike prices of the bought and sold options. If the stock price is midway between the strike prices, the effect can be minimal. If the share price is closer to the higher strike price of the bought put, losses generally increase at a faster rate as time passes. Alternatively, if the share price is closer to the lower strike price of the sold put, profits generally increase at a faster rate as time passes.
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