###### Bear Put Debit Spread Profit Loss Graph The bear put spread strategy is a BEARISH strategy, where an investor will sell an At the Money (ATM) or slightly In the Money (ITM) PUT then buy a deeper ITM PUT. Since the PUT that is purchased is deeper ITM, the transaction results in a net debit.
 » Sell an At or In the money put and buy a higher strike put. Since the long put is deeper In the Money, the investor will pay a debit. » This is a bearish strategy as you expect the stock to remain below the short (sold) put strike price. » In order to realize a profit, an investor must close both legs at or near expiration. » The maximum risk of this bear put spread strategy is the net debit.

 BUY an ITM (In the Money) PUT. SELL a PUT one or more strikes below #1 PUT in the same month. The net investment or maximum risk is the net debit The maximum profit is realized if the stock is anywhere below the lowest strike price. The break even point is the higher strike price (#1) minus the net debit. Profit is realized when the stock price falls below the break even at or near expiration. Maximum profit is made when the stock price falls below the lower strike price (#2 PUT). Profit is achieved when both legs of the position are liquidated prior to expiration.
##### The return calculations for the Bear-Put Debit Spread are:
 % Return = Maximum profit / Net Investment % Return = (Difference in strikes - Net Debit) / Net Debit
##### Where...
 Net Debit = Premium on Bought PUT - Premium on Sold PUT Example: Stock XYZ at \$43.84 per share. Buy the SEP 50 PUT for \$6.70 Write (Sell) the SEP 45 PUT for \$3.10 % Return = (Difference in strikes - Net Debit) / Net Debit % Return = (50 - 45 - (6.70 - 3.10)) / (6.70 - 3.10) = 1.40 / 3.60 = 38.9% Max. Risk = Net Debit = 6.70 - 3.10 = \$3.60, if stock is > \$50 (both options would expire worthless and you would lose the entire Net Debit). Max. Profit = Difference in strikes - Net Debit = (50 - 45 - (6.70 - 3.10)) = \$1.40, if stock is < \$45. Break Even = Higher Strike - Net Debit = \$50 - 3.60 = \$46.40
 XYZ at exp. Long 50 PUT Short 45 PUT Spread Value Spread Cost Net \$55.00 0 0 0 -\$3,600 -\$3,600 \$50.00 0 0 0 -\$3,600 -\$3,600 \$46.40 \$3,600 0 \$3,600 -\$3,600 0 \$45.00 \$5,000 0 \$5,000 -\$3,600 +\$1,400 \$40.00 \$10,000 \$5,000 \$5,000 -\$3,600 +\$1,400