What is a Bear Put Spread?

A Bear Put Spread is a defined-risk options strategy used when the market view is bearish. It involves buying a higher-strike put and selling a lower-strike put with the same expiry.

The strategy requires a net premium payment because the purchased put generally costs more than the premium received from the sold put.

In a Bear Put Spread strategy:

• Maximum Loss = Net Premium Paid × Lot Size
• Maximum Profit = (Higher Strike – Lower Strike – Net Premium) × Lot Size

Traders may note that the maximum loss is limited to the premium paid, while the maximum profit is also capped.

How to Execute the Bear Put Spread Strategy in India?

Let’s understand through a bear put spread Nifty options example. Suppose NIFTY is trading at 25,000. A trader “buys” 25,000 Put at ₹220 and “sells” 24,800 Put at ₹120. By doing so, they receive a net premium of ₹100 (₹220 – ₹120). 

Now, assume that at expiry, NIFTY falls below 24,800. Consequently, the spread reaches its maximum payoff.

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