Question

Give a brief example of the option ( Bear Put Spread ) ?

Answer 1

A bear put spread consists of one long put with a higher strike price and one short put with a lower strike price. Both puts have the same underlying stock and the same expiration date. A bear put spread is established for a net debit (or net cost) and profits as the underlying stock declines in price. Profit is limited if the stock price falls below the strike price of the short put lower strike), and potential loss is limited if the stock price rises above the strike price of the long put (higher strike).

For instance, how about we accept that a stock is trading at $40. An alternatives merchant can utilize a bear put spread by buying one put option contract with a strike price of $45 for a cost of $475 ($4.75 * 100 offers/contract) and selling one put option contract with a strike price of $40 for $175 ($1.75 * 100 offers/contract). For this situation, the investor should pay an aggregate of $300 to set up this strategy ($475 - $175). In the event that the price of the underlying asset closes below $40 upon expiration, at that point the investor will get a profit of $200 (($45 - $40 * 100 offers/contract) - ($475 - $175)) or ($500 - $300).