Quick Answer
A bear put spread buys the higher strike and sells the lower strike for a net debit, profiting moderately as the stock falls. A bull put spread sells the higher strike and buys the lower strike for a net credit, profiting when the stock stays flat or rises. Both share the same breakeven: the higher strike minus the net premium.
Put spreads follow the same logic as call spreads, but the breakeven formula flips: it uses the higher strike price as the anchor instead of the lower strike.
Think of it this way: With call spreads, profit starts above the lower strike, so breakeven builds up from it. With put spreads, profit starts below the higher strike, so breakeven builds down from it.
What Is a Bear Put Spread (Debit Put Spread)?
- Structure: Buy a put at a higher strike price + sell a put at a lower strike price (same expiration)
- Net effect: Debit; the higher-strike put costs more than the lower-strike put pays
- Market outlook: Moderately bearish; expects the stock to decline, but not collapse
- Caps the downside profit in exchange for reducing the cost of the long put
| Component | Formula |
|---|---|
| Max gain | (High strike - Low strike) - Net debit |
| Max loss | Net debit paid |
| Breakeven | High strike - Net debit |
Example: Buy 1 XYZ Oct 60 put at 7 / Sell 1 XYZ Oct 50 put at 2
- Net debit = $7 - $2 = $5
- Max gain = ($60 - $50) - $5 = $5 (stock at or below $50)
- Max loss = $5 (stock at or above $60)
- Breakeven = $60 - $5 = $55
When max gain occurs: Both options are exercised; the investor sells at $60 and buys at $50, netting $10 minus the $5 debit
When max loss occurs: Both options expire worthless; the stock stays at or above the higher strike
Exam Tip: Gotchas
- A bear put spread is a debit spread even though "sell" appears in the structure. The bought put (higher strike) always costs more than the sold put (lower strike), so the investor pays a net debit.
What Is a Bull Put Spread (Credit Put Spread)?
- Structure: Sell a put at a higher strike price + buy a put at a lower strike price (same expiration)
- Net effect: Credit; the higher-strike put sold brings in more premium than the lower-strike put costs
- Market outlook: Moderately bullish; expects the stock to stay flat or rise
- Collects premium upfront and profits if the stock does not decline significantly
| Component | Formula |
|---|---|
| Max gain | Net credit received |
| Max loss | (High strike - Low strike) - Net credit |
| Breakeven | High strike - Net credit |
Example: Sell 1 XYZ Oct 60 put at 7 / Buy 1 XYZ Oct 50 put at 2
- Net credit = $7 - $2 = $5
- Max gain = $5 (stock at or above $60)
- Max loss = ($60 - $50) - $5 = $5 (stock at or below $50)
- Breakeven = $60 - $5 = $55
When max gain occurs: Both options expire worthless; the stock stays at or above the higher strike
When max loss occurs: Both options are exercised; the investor buys at $60 and sells at $50, losing $10 minus the $5 credit
Exam Tip: Gotchas
- Debit spreads and credit spreads are mirror images. Debit: max loss = premium paid, max gain = spread width minus premium. Credit: max gain = premium received, max loss = spread width minus premium.
- Call spread breakeven uses the lower strike; put spread breakeven uses the higher strike. Both add or subtract the net premium, but they start from opposite ends of the spread.
- The bear put spread and bull put spread with the same strikes share the same breakeven. In both examples above, breakeven is $55.
What Should You Check on Exam Day?
- Identify which strike was bought: the higher strike bought is a bear put spread (debit), the higher strike sold is a bull put spread (credit)
- Both share one breakeven formula: higher strike - net premium, whether that premium was paid or received
- Do not default to the call-spread breakeven anchor (lower strike); put spreads always anchor to the higher strike