Posted on March 1st, 2010 
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A bear put spread is a moderately bearish option strategy that profits when the underlying share price falls. A bear put spread is the reverse of a bull call spread and works the same way but profits from a fall in the share price rather than an increase in share price. The bear put spread involves simultaneously buying a put option at a strike price while also selling the same number of put options of the same stock but at a lower strike. A bear put spread is also a technique to buy put options at a discount. Because you sell an out-of-the-money put option in this option strategy, it effectively reduces your investment on your bought put options. This reduces upfront payment and therefore the risk of the position.
Maximum Profit
Maximum profit is achieved when the share price falls below the sold put at expiry. The maximum profit in this strategy is the difference between the strike prices of the long and short options, less the net cost of options.
Maximum Loss
If the stock price increases above the bought put at the expiration date, then the investor has a maximum loss potential of the net debit. The net debit is the premium received for selling the out-of-the-money put minus the cost associated to purchase the put option.
Break Even
The breakeven is higher than just buying a put which means the share does not have to fall as far. The breakeven point is the strike price of the bought put minus the net debit paid.
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