name: bear-put-spread description: Analyzes bear-put-spread debit spreads for bearish directional plays with defined risk. Requires numpy>=1.24.0, pandas>=2.0.0, matplotlib>=3.7.0, scipy>=1.10.0. Use when expecting moderate price decline, comparing put spread configurations, analyzing debit spread opportunities, or evaluating defined-risk bearish positions on mid to large-cap stocks.

Bear Put Spread Strategy

Version: 1.0 Last Updated: 2025-12-12

Overview

A bear-put-spread is a vertical options strategy that profits from moderate downward price movement while limiting both risk and reward. The strategy involves buying a higher-strike put (closer to ATM) and selling a lower-strike put (further OTM), creating a net debit position with defined maximum loss and profit.

Quick Summary: Buy higher put + Sell lower put = Defined-risk bearish play

Strategy Characteristics

Position Structure:

Buy 1 put at higher strike (long put)
Sell 1 put at lower strike (short put)
Same expiration date
Same underlying stock

Risk Profile:

Maximum Loss: Net debit paid (long premium - short premium)
Maximum Profit: Spread width - Net debit
Breakeven: Long strike - Net debit
Best Use: Moderately bearish outlook with defined risk parameters

Cost Components:

Long put premium (debit)
Short put premium (credit)
Net debit = Long premium - Short premium
Transaction costs: ~$0.65 per contract × 2 legs = $1.30

Quick Start

Calculate bear-put-spread metrics:

from scripts.bear_put_calculator import BearPutSpread

# Example: Bearish on SPY at $450
position = BearPutSpread(
    underlying_price=450.00,
    long_put_strike=450.00,   # Buy ATM put
    short_put_strike=445.00,  # Sell $5 OTM put
    long_put_premium=7.50,
    short_put_premium=5.00,
    contracts=1
)

# Key metrics
print(f"Max Profit: ${position.max_profit:.2f}")
print(f"Max Loss: ${position.max_loss:.2f}")
print(f"Breakeven: ${position.breakeven_price:.2f}")
print(f"Risk/Reward: {position.risk_reward_ratio:.2f}")

Core Workflow

1. Market Analysis

Identify bearish opportunity with moderate downside target.

Criteria:

Technical breakdown (support break, bearish pattern)
Negative fundamental catalyst
Downtrend confirmation
Target price identified

2. Strike Selection

Long Put (Higher Strike):

Typically ATM or slightly ITM
Delta: -0.45 to -0.55
Provides directional exposure

Short Put (Lower Strike):

OTM below long strike
Delta: -0.20 to -0.35
Reduces cost, defines max profit

Common Spread Widths:

Narrow ($2.50-$5): Lower cost, lower profit
Standard ($5-$10): Balanced risk/reward
Wide ($10-$20): Higher cost, higher profit potential

See references/strike-selection-guide.md for delta-based framework.

3. Spread Width Analysis

Compare spread configurations:

from scripts.spread_analyzer import analyze_spread_widths

# Compare $2.50, $5, $10 spreads
results = analyze_spread_widths(
    underlying_price=450.00,
    long_put_strike=450.00,
    spread_widths=[2.5, 5.0, 10.0],
    volatility=0.22,
    days_to_expiration=45
)

# Analyze return on risk for each width
for width, metrics in results.items():
    print(f"${width} spread: ROR {metrics['return_on_risk']:.1f}%")

See references/spread-width-analysis.md for optimization.

4. Expiration Cycle Selection

Standard Cycles:

30-45 days: Optimal theta decay, standard choice
45-60 days: More time for thesis to play out
60-90 days: Reduced urgency, lower theta

Considerations:

Time for bearish thesis to materialize
Theta decay acceleration (30-45 DTE sweet spot)
Upcoming events (earnings, Fed meetings)

See references/expiration-analysis.md.

5. Position Sizing

Calculate appropriate contracts based on portfolio risk:

from scripts.position_sizer import calculate_position_size

contracts = calculate_position_size(
    portfolio_value=100000,
    risk_per_trade=0.02,      # 2% portfolio heat
    max_loss_per_contract=250  # From spread analysis
)
# Returns: 8 contracts (max risk $2,000)

See references/position-sizing.md.

6. Greeks Analysis

Monitor position Greeks:

from scripts.greeks_calculator import calculate_spread_greeks

greeks = calculate_spread_greeks(
    long_put_strike=450.00,
    short_put_strike=445.00,
    underlying_price=450.00,
    volatility=0.22,
    time_to_expiration=45/365
)

print(f"Delta: {greeks['delta']:.3f}")    # Negative (bearish)
print(f"Theta: {greeks['theta']:.3f}")    # Time decay
print(f"Vega: {greeks['vega']:.3f}")      # IV sensitivity

See references/greeks-guide.md.

7. Entry Execution

Order Types:

Limit Order: Specify max net debit willing to pay
Market Order: Immediate fill (wider slippage)
Vertical Spread Order: Single order for both legs

Best Practices:

Enter as single spread order (better pricing)
Set limit at mid-point of bid/ask spread
Adjust limit if not filled within 30 seconds
Avoid wide markets (>10% spread width)

8. Management and Exit

Profit Targets:

50% max profit: Close early, reduce risk
75% max profit: Near maximum, theta slowing
Max profit: Hold to expiration (if confident)

Stop Loss:

100% of debit: Full loss, thesis invalidated
150% of debit: Avoid if spread widens against you

Adjustments:

Roll down: Lower both strikes if further bearish
Roll out: Extend expiration if need more time
Close early: Take profits or cut losses

See references/management-strategies.md.

Scripts

Calculator

# Calculate bear-put-spread metrics
python scripts/bear_put_calculator.py \
  --underlying SPY \
  --price 450 \
  --long-strike 450 \
  --short-strike 445 \
  --long-premium 7.50 \
  --short-premium 5.00 \
  --contracts 1

Spread Analyzer

# Compare multiple spread widths
python scripts/spread_analyzer.py \
  --underlying SPY \
  --price 450 \
  --widths 2.5 5.0 10.0 \
  --dte 45

Position Sizer

# Calculate optimal contracts
python scripts/position_sizer.py \
  --portfolio 100000 \
  --risk-percent 2 \
  --max-loss 250

References

Core Guides

quickstart-guide.md - 5-minute overview
installation-guide.md - Setup instructions
developer-guide.md - Code standards

Strategy-Specific

strike-selection-guide.md - Delta-based strike framework
spread-width-analysis.md - Compare $2.50/$5/$10 spreads
expiration-analysis.md - 30/45/60 day comparison
greeks-guide.md - Delta, theta, vega calculations
position-sizing.md - Portfolio heat calculations
management-strategies.md - Profit targets, stop loss, adjustments
examples.md - Real-world scenarios

Dependencies

Required Packages:

numpy>=1.24.0
pandas>=2.0.0
matplotlib>=3.7.0
scipy>=1.10.0

Installation:

pip install -r requirements.txt

Python Version: 3.11+

Risk Warnings

⚠️ Key Risks:

Limited Profit: Capped at spread width - net debit
Directional Risk: Requires downward movement to profit
Time Decay: Theta works against long put if stock doesn't move
Assignment Risk: Short put may be assigned if ITM at expiration
Early Assignment: Possible if short put goes deep ITM (rare on index options)

Risk Mitigation:

Define max loss before entry (net debit paid)
Use stop loss at 100-150% of debit
Avoid holding through earnings (IV crush risk)
Monitor short put for early assignment (if deep ITM)
Size positions appropriately (2-5% portfolio heat)

When to Use Bear Put Spread

✅ Ideal Scenarios:

Moderately bearish outlook (5-10% downside expected)
Want defined risk and defined reward
Prefer lower cost than buying puts outright
Time horizon: 30-60 days
Normal to elevated IV environment

❌ Avoid When:

Strongly bearish (>15% move expected) - consider long puts
Neutral outlook - use different strategy
Very low IV - debit may be too low for good R:R
Need unlimited profit potential - use long puts

Comparison to Other Strategies

vs. Long Put:

✅ Lower cost (short put reduces debit)
❌ Limited profit (capped at spread width)
✅ Defined risk with better R:R ratio

vs. Put Ratio Spread:

✅ Simpler structure (1:1 ratio)
✅ No naked short exposure
❌ Lower profit potential

vs. Bear Call Spread:

❌ Requires debit (capital upfront)
✅ Profits from downside move (not time decay)
✅ Better for strong bearish conviction

Example Trade

Scenario: SPY at $450, expecting decline to $440-445 over 45 days

Setup:

Buy 1 SPY $450 put @ $7.50 (debit)
Sell 1 SPY $445 put @ $5.00 (credit)
Net debit: $2.50 × 100 = $250 per spread
Contracts: 4 (based on 2% portfolio risk on $50k account)