Put Bear Spreads

The put bear spread is the fourth and final vertical, and the mirror of the put bull spread with the legs swapped. It is a debit position built from two puts. Once you have it, all four verticals are on the table, so this section ends with the master comparison that ties them together.

The Bearish, Capped-Both-Ways Position

A put bear spread (also called a bear put spread or a debit put spread) is a bearish vertical made of two puts at the same expiration. It is a lower-cost, capped way to be bearish on a futures price, cheaper than buying an outright put because selling the lower-strike put pays for part of the higher-strike put.

• A put is the right to go short the future at the strike. Owning a put is bearish.
• You own the more valuable right (the higher strike) and finance it by selling the less valuable right (the lower strike).
• Both the profit and the loss are capped, because two strikes at one expiration can never be worth more than the distance between them.

Build: Buy the Higher Strike, Sell the Lower Strike

• Buy the put at the higher strike; sell (write) the put at the lower strike, same expiration, same underlying futures.
• The higher-strike put costs more than the lower-strike put brings in, so you pay to enter. The position is a net debit (premium paid), and that debit is the cash at risk.

Think of it this way: this is the put-side twin of the call bull spread. Same debit structure, same capped-both-ways payoff, just pointed downward instead of up.

Direction: Profits as the Futures Falls and the Spread Widens

NFA annotates this spread "spread to widen." The cause-and-effect chain:

• Futures price falls → the higher-strike put gains value faster than the lower-strike put → the gap between the two put values widens toward the strike difference.
• The gap can widen only up to the strike difference. Once the futures sits at or below the lower strike, both puts are deep in the money and move point-for-point, so the gap freezes at the full distance between the strikes. That ceiling caps the profit.

Maximum Profit and Maximum Loss

• Maximum profit = (strike difference) minus the net debit. Reached when the futures settles at or below the lower strike (both puts in the money, gap at the full strike difference).
• Maximum loss = the net debit paid. Reached when the futures settles at or above the higher strike, so both puts expire worthless and the whole debit is gone.
• Breakeven (concept): higher strike minus the net debit.

Example: buy the 110 put and sell the 100 put for a net debit of 4.

• Strike difference = 110 minus 100 = 10.
• Maximum profit = 10 minus 4 = 6, reached at or below 100.
• Maximum loss = 4, reached at or above 110.
• Breakeven = 110 minus 4 = 106.
• Check: max profit plus max loss = 6 plus 4 = 10, the strike difference. Foots.

Exam Tip: Gotchas

• A put bear spread is a DEBIT, and it is the bearish twin of the put bull spread's credit. Both use puts; one pays premium (bearish), the other collects it (bullish). Do not let "puts" default you to a single direction.
• Widen, not narrow. Like every debit spread, it needs the gap between the two puts to grow toward the strike difference.
• Small loss, large profit. Max loss is the debit; max profit is the strike difference minus the debit. That is the debit signature, the reverse of a credit spread.

The Four Verticals Side by Side

This is the master table to memorize. Read it two ways. First by cash flow: debits (call bull, put bear) profit when the spread WIDENS toward the strike difference; credits (call bear, put bull) profit when the spread NARROWS toward zero. Second by direction: each bull view and each bear view splits into one debit and one credit.

Three rules unlock the whole table:

• The unifying rule: a debit spread wants the gap to widen toward the strike difference (its max profit is the strike difference minus the debit, its max loss is the debit). A credit spread wants the gap to narrow toward zero (its max profit is the credit, its max loss is the strike difference minus the credit). NFA labels the debits "spread to widen" and the credits "spread to narrow."
• The sanity check: for every vertical, max profit plus max loss equals the strike difference (before fees). A debit's small loss (the debit) pairs with a large profit; a credit's small profit (the credit) pairs with a large loss. Both sides are capped because both legs share one expiration and the strike gap is bounded.
• The pairing: a bull view splits into one debit (calls) and one credit (puts). A bear view splits into one debit (puts) and one credit (calls).

Reached-when levels follow the option type. A call vertical hits its extreme value at or above the higher strike (both calls in the money, gap at the full strike difference) and its zero-gap point at or below the lower strike (both calls worthless). A put vertical is the mirror: full value at or below the lower strike (both puts in the money), zero value at or above the higher strike.

Memory Aid: Pay a Debit, you want the gap to Distend (widen). Take a Credit, you want it to Close (narrow). Same first letter on both sides of each pairing, so the cash flow tells you which way to root.

Exam Tip: Gotchas

• Debit widens, credit narrows. This is the single rule the exam tests hardest. A call bull and a put bear are debits that need the gap to grow. A call bear and a put bull are credits that need the gap to collapse. Flipping widen and narrow, or pairing a bull spread with the wrong cash flow, reverses the whole trade.
• Max profit plus max loss always equals the strike difference. If a set of answer figures does not foot to the strike difference, the numbers are wrong. This one check catches most calculation traps.
• An option vertical caps BOTH sides. Two strikes at one expiration, bounded gap, so both the max profit and the max loss are pinned. This is the structural fact that separates a vertical from the futures calendar spread in the spreading chapter, which caps only one side.