11.41Bear Put Spread
1What is it?
Buy a higher-strike put and sell a lower-strike put (same expiry).
2Why does it exist?
When it is used: You expect a moderate fall.
3Diagram
Max profit
₹12,350
Max loss
₹7,150
Breakeven
₹24,890
4Calculation
- Buy 25,000 PE at 180, sell 24,700 PE at 70 → net cost 110.
- Expiry ≤ 24,700 → +₹12,350.
- Expiry ≥ 25,000 → −₹7,150.
- Maximum profit: (Width − net debit) × lot = (300 − 110) × 65 = ₹12,350
- Maximum loss: Net debit: 110 × 65 = ₹7,150
- Breakeven: Higher strike − net debit = 24,890
5Risks
- Limited-risk position: the most you can lose is known in advance.
- Premiums shown are hypothetical; real premiums depend on volatility and time to expiry.
6Quick revision
- Max profit: (Width − net debit) × lot = (300 − 110) × 65 = ₹12,350
- Max loss: Net debit: 110 × 65 = ₹7,150
- Breakeven: Higher strike − net debit = 24,890
7Knowledge check
Q1. Which put do you buy: higher or lower strike?Show answer
Higher.
Q2. Max loss?Show answer
Net debit.
Q3. Best outcome?Show answer
Expiry at or below the lower strike.
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