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Put Bear Spread 
Buy XYZ January 60 put 
Sell XYZ January 50 put 
(debit spread) 
Part Ill: Put Option Strategies 
Call Bear Spread 
Buy XYZ January 60 call 
Sell XYZ January 50 call 
(credit spread) 
The put bear spread has the same sort of profit potential as the call bear spread. 
There is a limited maximum potential profit, and this profit would be realized if XYZ 
were below the lower striking price at expiration. The put spread would widen, in this 
case, to equal the difference between the striking prices. The maximum risk is also 
limited, and would be realized if XYZ were anywhere above the higher striking price 
at expiration. 
Example: The following prices exist: 
XYZ common, 55; 
XYZ January 50 put, 2; and 
XYZ January 60 put, 7. 
Buying the January 60 put and selling the January 50 would establish a bear 
spread for a 5-point debit. Table 22-1 will help verify that this is indeed a bearish 
position. The reader will note that Figure 22-1 has the same shape as the call bear 
spread's graph (Figure 8-1). The investment required for this spread is the net debit, 
and it must be paid in full. Notice that the maximum profit potential is realized any­
where below 50 at expiration, and the maximum risk potential is realized anywhere 
above 60 at expiration. The maximum risk is always equal to the initial debit required 
to establish the spread plus commissions. The break-even point is 55 in this example. 
The following formulae allow one to quickly compute the meaningful statistics 
regarding a put bear spread. 
Maximum risk = Initial debit 
Maximum profit = Difference between strikes - Initial debit 
Break-even price = Higher striking price - Initial debit 
Put bear spreads have an advantage over call bear spreads. With puts, one is 
selling an out-of-the-money option when setting up the spread. Thus, one is not risk­
ing early exercise of his written option before the spread becomes profitable. For the 
written put to be in-the-money, and thus in danger of being exercised, the spread 
would have to be profitable, because the stock would have to be below the lower 
striking price. Such is not the case with call bear spreads. In the call spread, one sells 
an in-the-money call as part of the bear spread, and thus could be at risk of early exer­
cise before the spread has a chance to become profitable.