1 / 9

Bear Put Spread

Bear Put Spread. 碩財二甲 MA080104 陳俊諺. When to Use a Bear Put Spread. Moderately Bearish

adora
Download Presentation

Bear Put Spread

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Bear Put Spread 碩財二甲 MA080104 陳俊諺

  2. When to Use a Bear Put Spread Moderately Bearish An investor often employs the bear put spread in moderately bearish market environments, and wants to capitalize on a modest decrease in price of the underlyingoption. If the investor's opinion is very bearish on a option it will generally prove more profitable to make a simple put purchase.

  3. How a Bear Put Spread Works Bear Put Spread = Long Put (At a higher strike) + Short Put (At a lower strike) Establishing a bear put spread involves the purchase of a put option on a particular underlying stock, while simultaneously writing a put option on the same underlying stock with the same expiration month, but with a lower strike price. Both the buy and the sell sides of this spread are opening transactions, and are always the same number of contracts.

  4. Max Gain Max Gain The maximum gain is limited. The best that can happen is for the option price to be below the lower strike at expiration. The upper limit of profitability is reached at that point, even if the stock were to decline further. Assuming the option price is below both strike prices at expiration, the investor would exercise the long put component and presumably be assigned on the short put. So,the option is sold at the higher (long put strike) price and simultaneously bought at the lower (short put strike) price. The maximum profit then is the difference between the two strike prices, less the initial outlay (the debit) paid to establish the spread.

  5. Max Loss and Breakeven Max Loss The maximum loss is limited. The worst that can happen at expiration is for the option to be above the higher (long put) strike price. In that case, both put options expire worthless, and the loss incurred is simply the initial outlay for the position (the debit). Breakeven This strategy breaks even if, at expiration, the stock price is below the upper strike by the amount of the initial outlay (the debit). In that case, the short put would expire worthless, and the long put's intrinsic value would equal the debit. Breakeven = long put strike - net debit paid

  6. Conclusion Maximum Loss = 56 Maximum Profit = 114 Breakeven Point = 7644

More Related