Bear Put Spread
Bear Put Spread Strategy
The Bear Put Spread is a bearish options strategy designed for traders who expect a moderate decline in the price of an asset. It allows for low cost and decent profits if the price falls to a certain level, making it more affordable than buying a single put option outright.
How the Bear Put Spread Works
The strategy is built by combining two positions:
Buy one ATM Put Option (strike price = current market price).
Sell one OTM Put Option (strike price = below the current market price).
Selling the OTM put reduces the overall cost of the strategy, since the premium received offsets part of the premium paid for the ATM put.
Cost: Lower than buying a single put.
Profit: Capped at the difference between strike prices minus the net premium.
Risk: Limited to the premium paid.
Buying one Bear Put Spread is equal to buying an ATM Put while simultaneously selling an OTM Put with a lower strike price.
Break-Even Price
The break-even price is slightly below the ATM strike. This means the underlying only needs to decline modestly for the strategy to move into profit, unlike a single ATM put which requires a larger drop.
Example with ETH
Suppose ETH is trading at $4,200.
Buy: 1 ATM Put Option at strike = $4,200.
Sell: 1 OTM Put Option at strike = $3,800.
Scenario 1: ETH falls to $3,500
The ATM put becomes valuable.
The OTM put is exercised by the buyer, capping further gains.
Net result: Maximum profit achieved (difference between $4,200 and $3,800 minus net premium).
Scenario 2: ETH falls moderately to $4,000
The ATM put is slightly profitable.
The OTM put expires worthless.
Net result: Moderate profit after premiums.
Scenario 3: ETH stays at $4,200 or rises
Both options expire worthless.
Net result: Loss limited to the net premium paid.
Why Use the Bear Put Spread on Nexo Options?
Cost-Efficient: Less expensive than buying a standalone put.
Defined Risk/Reward: Maximum loss is the premium, maximum gain is capped.
Effective for Moderate Bearish Views: Ideal when expecting a steady decline rather than a sharp crash.
Flexible: Works as both a speculative tool and a risk-managed hedge for portfolios.
Key Takeaways
Best used when expecting a moderate drop in ETH or BTC prices.
Profit potential is capped, but so is the risk.
A Bear Put Spread provides a practical balance between affordability and profitability, making it one of the most popular structured bearish strategies on Nexo Options.
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