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training_data/curated/text/91ea86bc06eb186abd3dde2347abc8917612ac95281610e44e4533fe9880b720.txt

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+EXHIBIT 9.7 ExxonMobil bear put spread.
+If the trader is wrong and ExxonMobil is still above 80 at expiry, both
+puts expire and the 1.30 premium is lost. If ExxonMobil is between the two
+strikes, the 80 puts are ITM, resulting in an exercise, and the 75 puts are
+OTM and expire. The net effect is short stock at an effective price of
+$78.70. The effective sale price is found by taking the price at which the
+short stock is established when the puts are exercised—$80—minus the net
+1.30 paid for the spread. This is the spread’s breakeven at expiration.
+If the trader is right and ExxonMobil is below both strikes at expiration,
+both puts are ITM, and the result is a 3.70 profit and no position. Why a
+3.70 profit? The 80 puts are exercised, making the trader short at $80, and
+the 75 puts are assigned, so the short is bought back at $75 for a positive
+stock scalp of $5. Including the 1.30 debit for the spread in the profit and
+loss (P&(L)), the net profit is $3.70 per share when the stock is below both
+strikes at expiration.
+This is a bearish trade. But is the bear put spread necessarily a better trade
+than buying an outright ATM put? No. The at-expiration diagram makes this
+clear. Profits are limited to $3.70 per share. This is an important difference.
+But because in this particular example, the trader expects the stock to
+retrace only to around $75, the benefits of lower cost and lower theta and
+vega risk can be well worth the trade-off of limited profit. The trader’s