Bear put Spreads are directional option strategies because they rely on the price action of the Underlying moving lower in order to generate a profit.
Bear put debit Spreads are typically initiated when Implied Volatility is low but expected to rise (which is usually when the price of the Underlying falls, in the case of Stock Options).
See the Profit & Loss diagram of the Bear Put Spread strategy at OptionCreator
XYZ is trading at 2045
Long 1 x At The Money 2045 Strike Put for 37.58
Short 1 x Out Of The Money 2035 Strike Put for 32.89
Net debit to enter the trade: (-4.68)
All options expire worthless with XYZ trading at 2080
Long 1 x At The Money 2045 Strike Put is worthless (0)
Short 1 x Out Of The Money 2035 Strike Put is worthless (0)
The trader sustains the maximum loss, the (-4.68) debit to enter the trade.
XYZ expires at 2025
Long 1 x At The Money 2045 Strike Put is worth 20
Short 1 x Out Of The Money 2035 Strike Put is worth 10
Profit = 10
Minus the (-4.68) debit to enter the trade
Net profit = 5.32
External LinksBear Put Spread
OIC strategy article about bear put spreads.Bear Put Spread
TheOptionsGuide.com article about bear put spreads.Options strategy: The bear put spread
A guide to bear put debit spreads by brokers, Fidelity.