   10: The Bear Put Spread Strategy Strategy: Bear put spread Opening the Trade: 1. "Buy to open" a put option on company X and 2. "Sell to open" a put option on company X at a strike lower than the long put Closing the Trade: 1. "Buy to close" a put option with the same strike and expiration as your short put AND "sell to close" a put option with the same strike and expiration as your long put 2. Let both options expire worthless 3. Let the short option expire worthless AND exercise the long one 4. You get exercised on the short one AND you exercise the long one Summary: This is called a Bear Put Spread, because you are bearish on the underlying stock (you think it will go down in price), you use two put options to open the trade (one you buy and one you sell), and its a spread (the put you buy protects the put you sell). In fact, this is just like being short stock, except you use two put options to do it. You profits are limited on the upside, and your losses are limited on the downside! No margin is required to open a bear put spread. Maximum Profit: The difference between the two strike prices minus your cost to open the spread. Maximum Loss: The cost to open the spread. Breakeven: You lose money on this trade if the stock price is above the upper strike price minus the cost to open the spread.  Figure 1: 55/60 Bear Put Spread on XYZ Example:
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