A bear put spread is a bearish options trading strategy employed when the market is volatile and moderately bearish. In such instances an investor will look to make profitable trades that do not incur high risk. The bear put spread method, also known as vertical bear puts, is used by traders to realize profits when the market is looking to the money of the investor.
The profit and loss strategy for a bear put spread is very similar to a bear call spread. The bear put spread comes into play when a trader buys a put option on a particular stock that is out-of-the-money and sells an out-of-the-money put on the same stock. For this method both options should have the same expiration date. With a bear put spread, the trader does not immediately realize the net premium when establishing the position and must wait until the expiration date to see any profit. While the trader does not have money in hand, the profit potential is greater with a bear put spread.
While the bear put spread is riskier than a bear call spread, the potential for profit is greater than implanting the call spread. In a bear put spread, if the price increases above the in-the-money (higher) put option strike price at the expiration date, then the investor has a maximum loss potential of the net debit. Conversely, the maximum profit potential involved in a bear put spread occurs when the stock decreases below the out-of-the-money (lower) put option strike price. The maximum profit potential is limited to the premium collected for the calls sold less the cost of the premium paid for the calls that were purchased.
Traders will find more opportunities for profitable trading in a bull market; a bear market typically requires a trader to be more conservative in order to minimize risks and find trades that, while lucrative, are less risky. A Bear Call Spread is a perfect example of such a conservative move to create profits.
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Japanese Candlestick trading signals consist of approximately 40 reversal and continuation patterns. All candlestick patterns have credible probabilities of indicating correct future direction of a price move.
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