Bear Put Spread: When to Deploy

Understanding the Building Blocks: Puts and Spread Mechanics

Before you can appreciate why a bear put spread works, you need a clear understanding of its two constituent parts: the long put and the short put.

A put option gives its buyer the right - but not the obligation - to sell the underlying asset at the agreed strike price on or before the expiry date. In India, most equity index options on NSE are European-style, meaning they can only be exercised on the expiry date itself (typically the last Thursday of the month for monthly contracts, or the weekly Thursday for weekly Nifty and Bank Nifty options). Stock options listed on NSE and BSE are American-style, allowing early exercise at any time before expiry. This distinction matters when structuring a bear put spread.

When you buy a put option, you pay a premium to the exchange-clearing mechanism (through your broker) and gain the right to benefit if the underlying falls. The maximum loss is the premium paid; the potential profit grows as the underlying falls toward zero, though practically the underlying rarely moves that far.

Now, when you also sell a put option - at a lower strike price, same expiry - you collect a premium. In exchange, you take on the obligation to buy the underlying at that lower strike if the buyer of that put exercises it. By doing this simultaneously with the long put purchase, you create a spread. The net premium you pay is: Premium of Long Put (higher strike) minus Premium of Short Put (lower strike). Since the higher-strike put is more expensive (it has more intrinsic or time value in a bearish environment), you always pay a net debit to enter this trade. That is why it is also called a bear put debit spread.

The mechanics create three zones of outcome at expiry:

First, if the underlying closes above the higher strike price, both puts expire worthless, and you lose the entire net premium paid. This is your maximum loss.

Second, if the underlying closes between the two strikes, the long put has some value (it is in the money) while the short put expires worthless. Your profit equals the intrinsic value of the long put minus the net premium paid. The position breaks even exactly where the underlying equals the higher strike minus the net premium.

Third, if the underlying closes at or below the lower strike price, both puts are in the money. Your long put gains value but your short put costs you value. The net gain is the difference between the two strike prices minus the net premium paid. This is your maximum profit, and it does not increase further no matter how much more the underlying falls. That is the trade-off: by selling the lower put, you cap your upside.

This capping of profit is not a flaw - it is a feature. The premium collected by selling the lower put lowers your break-even point and reduces the cost of the position. For traders who want a cost-efficient way to take a directional bearish view with clearly defined risk, this structure is hard to beat.

To put numbers to this: if Nifty 50 is trading at 22,000 and you buy the 21,800 put for ₹120 and sell the 21,500 put for ₹55, your net debit is ₹65 per unit. The lot size for Nifty options is 25 units (lot sizes are set by NSE and can change; always verify the current lot size on NSE's website or through your broker platform). So your total cash outflow is ₹65 × 25 = ₹1,625. Maximum profit is (21,800 − 21,500 − 65) × 25 = ₹235 × 25 = ₹5,875. Your break-even is 21,800 − 65 = 21,735.

When to Deploy: Market Conditions That Favour a Bear Put Spread

Knowing how a strategy is constructed is only half the battle. The other half is knowing when conditions are right to deploy it. A bear put spread is not a set-and-forget universal strategy; it thrives in specific environments.

MODERATE BEARISH OUTLOOK The most fundamental condition is that you expect the underlying to fall, but not catastrophically. If you expect a 2–5% decline in Nifty 50 over the next few weeks, a bear put spread is ideal. If you expect a 15–20% crash, a naked long put or a put ratio spread might serve you better because the capping of profit at the lower strike would leave significant gains on the table.

HIGH OR ELEVATED IMPLIED VOLATILITY When implied volatility (IV) is elevated - perhaps because of an upcoming Budget announcement, RBI monetary policy meeting, or a major geopolitical event - option premiums across the board are expensive. Buying a naked put in such conditions means paying a high premium that could rapidly erode if volatility subsides (a phenomenon called "IV crush"). By selling the lower-strike put simultaneously, you partially finance the expensive premium with another expensive premium. The net debit is lower than in a low-IV environment relative to the spread width, making the strategy more efficient.

CLEAR TECHNICAL RESISTANCE OR SUPPORT LEVELS Bear put spreads work exceptionally well when you have a target downside level in mind. In technical analysis, if you can identify a strong support level below the current price - say a major moving average, a prior swing low, or a volume profile node - you can place the short put strike at or near that support. You are essentially saying: "I believe the market will fall to this level, but probably not much further." This structured thinking is what the spread's capped profit architecture rewards.

AFTER A PERIOD OF EXTENDED RALLY Indian markets, like all markets, go through cycles. After a prolonged bull run where indices like Nifty 50 or Bank Nifty have moved significantly higher, valuations often stretch and the probability of at least a partial correction increases. A bear put spread during such periods allows you to take a contrarian bet with controlled risk - you are not calling a crash, just a mean-reversion dip.

SECTOR-SPECIFIC HEADWINDS Sometimes the broader index is stable but a specific sector faces headwinds - a regulatory crackdown on a particular industry, rising input costs for a manufacturing sector, or disappointing quarterly results from a sector heavyweight. If you hold a sectoral view, bear put spreads on stocks within that sector (available on NSE and BSE for F&O-eligible stocks) can express that view with defined risk.

PRE-EVENT HEDGING Portfolio managers and serious retail investors often use bear put spreads as a hedging tool before major events. If you hold a long equity portfolio and worry about a pullback from an upcoming earnings season, a bear put spread on Nifty or Bank Nifty can act as insurance at a lower cost than buying outright puts, because the sold put partially offsets the premium cost.

WHEN YOU WANT POSITIVE THETA (RELATIVE) Compared to a naked long put, a bear put spread has a better theta profile. Because you are both long and short options, time decay on the long put is partially offset by time decay working in your favour on the short put. This makes the spread somewhat more forgiving in sideways markets where you might be directionally right eventually but the market takes its time to move.

In Indian markets, these conditions often converge around events such as: F&O expiry week volatility (monthly expiry on the last Thursday), Union Budget weeks, RBI policy announcements, US Fed meetings (which influence FII flows into Indian equities), and domestic macroeconomic data prints (IIP, CPI, WPI).

Selecting the Right Strikes and Expiry on NSE and BSE

Strike selection and expiry selection are arguably the most nuanced parts of constructing a bear put spread. Get them right and you maximise the strategy's efficiency; get them wrong and you are fighting an uphill battle from day one.

STRIKE SELECTION FOR THE LONG PUT The long put strike is your primary expression of the bearish view. You have three broad choices:

In-the-Money (ITM) Long Put: Buying a put that is already ITM means you start with intrinsic value. The position has a higher delta (more sensitive to a fall), which is good if you are confident about the move. However, ITM puts are more expensive, so the net debit is higher even after selling the short put. This approach suits traders who are highly confident in their directional call.

At-the-Money (ATM) Long Put: Buying the put closest to the current market price (the ATM strike) is the most common choice. The delta is roughly 0.45–0.50, meaning the position captures about half of each point move in the underlying. Premium is significant but not as expensive as deep ITM options. This is the balanced, most popular choice for a bear put spread.

Out-of-the-Money (OTM) Long Put: Buying an OTM put reduces the premium cost significantly, but the underlying must move more before this put goes ITM. The probability of profit is lower, but the cost-to-potential-reward ratio can look attractive on paper. Use this only if you expect a larger move and want to keep costs very low.

STRIKE SELECTION FOR THE SHORT PUT The short put strike determines your profit target and defines the maximum gain. Common guidelines:

The width of the spread (difference between the two strikes) should reflect your expected move. If you expect Nifty to fall from 22,000 to around 21,500, a 300-point spread (say 21,800 long put, 21,500 short put) captures that move.

Wider spreads cost more (higher net debit) but offer higher maximum profit in absolute terms. Narrower spreads are cheaper but limit your profit ceiling more aggressively.

A common rule of thumb is to set the short put at the nearest strong technical support level. If the underlying reaches that support, the position delivers maximum profit; if it breaks through support, you have already made your max profit and the additional downside does not hurt you further.

EXPIRY SELECTION NSE offers weekly expiries for major contracts like Nifty 50 and Bank Nifty (weekly options expire every Thursday), and monthly expiries for both index and stock options. How do you choose?

Short-term trades (1–3 weeks): If your bearish catalyst is a specific event - an earnings release, a macro data print, a policy meeting - weekly options or near-month options are appropriate. The position will resolve quickly, theta decay is faster, and capital is tied up for less time.

Medium-term views (3–6 weeks): Monthly options are ideal here. You give the market time to move in your direction while still benefiting from the spread's cost-efficiency.

Longer-term views (1–3 months): Far-month options can be used, but liquidity thins out significantly in Indian markets beyond the near month for most contracts. Bid-ask spreads widen, making entry and exit costly. Unless you are trading a highly liquid contract like Nifty 50, stick to the current or next month.

Always check open interest and traded volume at your chosen strikes before entering. On NSE, the option chain data is publicly available and shows open interest and last traded price for each strike. Avoid strikes with very low open interest as the bid-ask spread will work against you.

IMPLIED VOLATILITY CONSIDERATIONS Before finalising strikes, look at the IV of your chosen options. If the IV of the long put is significantly higher than the IV of the short put (a steep volatility skew, which is common in Indian markets where OTM puts trade at a premium due to demand for downside protection), the spread may cost more than you expect based on simple models. Understanding the volatility skew is an advanced but important consideration for optimising entry.

Greeks Deep Dive: How Delta, Theta, Vega, and Gamma Affect the Spread

Option Greeks are the sensitivity measures that tell you how your position's value changes with various market parameters. For a bear put spread, understanding the combined Greeks of the two legs is essential for managing the trade actively.

DELTA Delta measures how much the option price changes for a one-point move in the underlying. For a long put, delta is negative (typically between −1 and 0 for a put). For a short put, delta is positive from the position holder's perspective (you sold a put with negative delta, so your net delta contribution from that leg is positive).

The net delta of a bear put spread = Delta of long put + Delta of short put (both measured from the position holder's perspective).

For example, if the long 21,800 put has a delta of −0.45 and the short 21,500 put has a delta of +0.25, the net delta is −0.20 per unit. On a 25-unit lot, the total delta exposure is −5 Nifty points per unit. This tells you the position benefits from a fall, but less aggressively than a naked long put.

Delta also changes as the market moves (this rate of change is captured by Gamma). As Nifty falls toward the lower strike, the long put delta grows more negative while the short put delta also grows more negative (hurting you), so the spread's net delta expands until both puts are deep ITM, at which point it flattens.

THETA (TIME DECAY) Theta is the silent enemy of option buyers. Every day, holding all else equal, an option loses some time value. For a bear put spread, the long put has negative theta (loses value with time) and the short put has positive theta (gains value for you as it decays). The net theta of a bear put spread is negative but smaller in absolute terms than a naked long put.

This means: if the market stays flat, a bear put spread loses money, but more slowly than a naked long put. Time is still working against you, just at a slower pace. This is why deploying the spread when you have a near-term catalyst in mind is important - you want the underlying to move before theta erodes too much of the premium.

VEGA (VOLATILITY SENSITIVITY) Vega measures sensitivity to changes in implied volatility. A long put has positive vega (rising IV increases its value). A short put has negative vega (rising IV hurts you as the seller). The net vega of a bear put spread is positive but smaller than a naked long put.

This has an important implication: if you enter the spread when IV is very high and then IV collapses (as often happens after a major event resolves - a phenomenon known as IV crush), the spread will lose less value than a naked long put would. The short put's vega partially hedges the vega of the long put.

Conversely, if you enter when IV is low and IV subsequently rises (perhaps as a new risk event emerges), both legs benefit from vega but the net gain is muted compared to a naked put.

GAMMA Gamma measures the rate of change of delta. For a bear put spread, gamma is positive near the higher strike (delta accelerates as you move through the long put's strike) and negative near the lower strike (once you are below the lower strike, further moves do not help). This creates a non-linear payoff in the middle zone between the two strikes, which is exactly where the strategy generates its profit.

PRACTICAL GREEK MANAGEMENT Most Indian retail traders using platforms like Flattrade can see the Greeks for each option leg in real time. Before entering a bear put spread, note the net delta, theta, and vega. Set mental checkpoints: if the position has lost, say, 50% of the maximum possible loss, it might be worth exiting rather than waiting for a full wipeout. Similarly, if the position has reached 70–80% of maximum profit well before expiry, consider closing early to lock in gains rather than gambling on a further move.

Margin, Premium Outflow, and Capital Efficiency in Indian Markets

One of the most practical considerations when trading options in India is the margin requirement. SEBI and NSE/BSE have specific margin frameworks - including SPAN (Standard Portfolio Analysis of Risk) margins and Exposure margins - that govern how much capital you need to put up for different positions.

For a bear put spread, the margin mechanics are favourable compared to other bearish strategies:

NAKED SHORT PUT MARGIN vs. SPREAD MARGIN If you were to sell a put naked (without the protecting long put above it), you would need to post a full SPAN margin plus exposure margin, which can be substantial. For Nifty options, this can run into lakhs of rupees per lot. However, when you buy the higher-strike put simultaneously (creating the spread), the exchange recognises the hedge and reduces the margin requirement significantly. In many cases, the net margin for a spread is essentially just the maximum possible loss (the net debit), which is a much smaller amount.

This capital efficiency is a major reason why sophisticated retail traders prefer spreads over outright naked option writing. Instead of locking up ₹1–2 lakhs per lot in margin for a naked put write, you might only need ₹5,000–₹10,000 for the same notional exposure in a spread structure.

However, always verify the actual margin requirement through your broker's margin calculator before placing the trade, as SEBI's margin framework (under the Peak Margin rules) has evolved significantly in recent years. Margins are calculated at the time of order placement and can change intraday.

NET DEBIT AND BREAK-EVEN CALCULATION The total capital at risk is simply: Net Premium Paid × Lot Size. This is a known, fixed amount from the moment you enter. There are no margin calls, no risk of losing more than this amount, and no overnight surprises. This is a critical psychological advantage: you know your worst case before you begin.

The break-even at expiry = Higher Strike − Net Premium Paid. For a trade to be profitable at expiry, the underlying must close below this level.

CAPITAL ALLOCATION GUIDELINES Position sizing is as important as strategy selection. As a general principle (not a recommendation for specific amounts, since risk tolerance varies), many experienced traders allocate only a portion of their options trading capital to any single spread position. The defined-risk nature of the bear put spread makes it easier to size positions rationally: if your total options trading capital is ₹5 lakhs and you are willing to risk 5% per trade, you would limit any single bear put spread position to ₹25,000 of maximum loss.

BROKERAGE AND TRANSACTION COSTS In India, options trades attract brokerage charges (which vary by broker), Securities Transaction Tax (STT) on the premium at rates specified by the Finance Act (refer to the latest Finance Act for current rates), GST on brokerage, SEBI turnover fees, NSE/BSE transaction charges, and stamp duty as per state-specific laws. For a two-legged strategy like a bear put spread, you incur transaction costs on both legs at entry and both legs at exit (if you close before expiry). These costs are small per unit but add up, especially for smaller lot sizes. Always account for round-trip transaction costs when calculating your realistic break-even and profit targets.

STT NUANCE AT EXPIRY A critical point for Indian traders: if an ITM option is exercised (or settled) at expiry in India, the STT is charged on the full settlement value (underlying price × lot size), not just the premium. This can be a significant cost for ITM spreads that are held to expiry. Many experienced traders therefore close spread positions before expiry if they are well in the money, to avoid this higher STT burden. Always consult your broker or a tax professional for the current STT rules, as they can change with each Finance Act.

Bear Put Spread vs. Alternative Bearish Strategies

Understanding a strategy in isolation is useful, but understanding it in the context of alternatives is what truly sharpens your judgment. Here is how a bear put spread compares with other common bearish approaches available to Indian traders:

BEAR PUT SPREAD vs. NAKED LONG PUT A naked long put gives you unlimited (theoretically) profit potential as the underlying falls toward zero, but costs more upfront and has a higher break-even to overcome. It is more sensitive to IV crush and theta decay. Use a naked long put when you expect a sharp, large decline and want to maximise profit from that crash. Use a bear put spread when you expect a moderate, measured decline and want to reduce your premium cost and IV risk.

BEAR PUT SPREAD vs. BEAR CALL SPREAD A bear call spread is a credit spread: you sell a call at a lower strike and buy a call at a higher strike, collecting a net credit. Both strategies are bearish and have defined risk-reward, but they have different profiles: - Bear put spread: Net debit; benefits from the underlying falling below the higher put strike. - Bear call spread: Net credit; profits if the underlying stays below the sold call strike at expiry. A bear call spread works better when you want the market to stay flat to slightly down, and you want time decay working in your favour. A bear put spread works better when you want to actively profit from a move downward.

BEAR PUT SPREAD vs. SHORT FUTURES Selling a futures contract (available on NSE for Nifty, Bank Nifty, and individual F&O stocks) gives you a linear, unlimited-loss bearish position. If the market rallies sharply, you face unlimited losses and margin calls. A bear put spread, by contrast, has a defined maximum loss. Futures are appropriate for very active traders with strong risk management; bear put spreads are appropriate for traders who want a defined-risk bearish bet.

BEAR PUT SPREAD vs. PROTECTIVE PUT A protective put (buying a put against a long equity position you already own) is primarily a hedging strategy rather than a speculative one. A bear put spread can be used as a hedging overlay too, but its capped profit means it provides only partial protection if the market crashes beyond the lower strike. For catastrophic tail-risk hedging, outright puts provide better coverage.

BEAR PUT SPREAD vs. PUT RATIO SPREAD A put ratio spread involves buying one put and selling two (or more) lower-strike puts. This can be set up for zero or even a net credit, but introduces the risk of naked short exposure below the lowest strike - your loss potential becomes unlimited if the market crashes hard. A bear put spread, by keeping a 1:1 ratio, eliminates this open-ended downside risk entirely.

BEAR PUT SPREAD vs. LONG STRADDLE/STRANGLE A straddle or strangle profits from large moves in either direction and is used when you expect high volatility but are unsure of direction. A bear put spread, by contrast, requires directional conviction. Straddles and strangles are more expensive and require larger moves to be profitable. If you have a clear bearish view, a bear put spread is more efficient.

SUMMARY COMPARISON TABLE (CONCEPTUAL) When IV is high, a bear put spread is more efficient than a naked long put. When you have a specific downside target, a bear put spread is more efficient than a straddle. When you want credit and prefer the market staying flat to slightly bearish, a bear call spread beats a bear put spread. When you want maximum downside leverage, short futures or deep OTM naked puts might serve you, but at much higher risk.

Rolling, Adjusting, and Exiting the Position

Entering a trade is only the beginning. Managing it through its life cycle - rolling, adjusting, or simply exiting at the right time - is what separates disciplined traders from impulsive ones.

EXITING BEFORE EXPIRY: THE RECOMMENDED APPROACH As discussed in the margin and tax section, holding an ITM bear put spread to expiry in India creates the STT-on-settlement issue and also means you sacrifice the time value that remains in the short put. Most experienced traders exit spread positions when they have captured 70–80% of the maximum possible profit, rather than holding to expiry hoping for the final 20–30%.

To close a bear put spread, you simply execute the reverse transactions: sell the long put (closing the long leg) and buy back the short put (closing the short leg). The net proceeds minus what you paid originally gives your realised profit or loss. On NSE, this is straightforward - both legs can be closed simultaneously or sequentially, though there is always a risk of legging out if you close one leg before the other (the market can move against you in the interim). Using a combination order or executing both legs quickly reduces this risk.

ROLLING DOWN If the underlying has fallen below both strikes and you want to continue expressing a bearish view for a longer period, you can roll the spread down and forward: - Close the current spread (both legs). - Open a new spread with lower strikes and/or a later expiry. This costs additional premium (you are buying a new spread) but allows you to continue capturing downside from the new, lower level. Rolling is not always the right choice; it depends on whether your fundamental thesis still holds and whether the additional premium cost is justified by the expected move.

ROLLING UP (LIMITING LOSSES) If the underlying has rallied against you and both puts are now deep OTM, the spread has lost most of its value. You can: - Exit the spread (close both legs) and accept the loss. - Roll the spread up (close the current spread, open a new one at higher strikes) to give the position a better chance, though this typically costs more premium. In practice, if the bearish thesis has been invalidated - the market has broken above a key resistance level, the catalyst has passed without the expected fall, or new positive data has emerged - it is usually better to exit cleanly rather than average down.

SETTING UP ALERTS AND STOP-LOSSES Most modern trading platforms, including Flattrade, allow you to set price alerts. For a bear put spread, consider setting alerts at: - The break-even level (if the underlying rallies above the higher strike minus net debit, the position is losing money). - A level where the spread's market value has declined to half the maximum loss (an early-exit trigger if the market is moving against you). - The lower strike (a signal that maximum profit is being approached and it may be time to consider partial or full exit).

AVOIDING COMMON MISTAKES The most common mistakes traders make with bear put spreads include: (1) Choosing strikes too far OTM to save premium, resulting in a position that rarely profits. (2) Not accounting for transaction costs and STT, which erode small profits. (3) Holding to expiry out of greed when the position has already achieved 70–80% of maximum profit. (4) Legging into the spread by buying the long put first and then trying to sell the short put at a better price - this introduces directional risk during the legging period. (5) Ignoring the effect of earnings announcements or other events that can cause a sudden IV spike or crash, radically changing the spread's value.

Taxation of Bear Put Spread Profits in India

Tax treatment of options profits in India is an area where many retail traders are poorly informed. Getting this wrong can lead to surprises at tax filing time. Here is a structured overview - but always consult a qualified chartered accountant (CA) for advice specific to your situation, as tax laws change with each Budget and Finance Act.

BUSINESS INCOME CLASSIFICATION Under Indian income tax law, gains from trading in derivatives (Futures & Options) are generally classified as non-speculative business income, regardless of whether you are trading for hedging or speculation. This is a favourable treatment compared to speculative income (which is the category for intraday equity trading) because non-speculative business losses can be set off against other business income (except salary) and can be carried forward for up to 8 assessment years.

However, this classification also means that you are required to file your income tax return in the appropriate form (typically ITR-3), maintain proper books of accounts, and if your turnover exceeds the specified threshold (refer the latest Finance Act for current limits), get your accounts audited by a CA under Section 44AB of the Income Tax Act.

TURNOVER CALCULATION FOR F&O For F&O trading, "turnover" for tax purposes is calculated differently from regular business turnover. For options, turnover is generally computed as the absolute value of all profits and losses (not the notional value of contracts). So if you made ₹10,000 profit on one trade and ₹5,000 loss on another, your turnover would be ₹15,000 for those two trades. This method was clarified by ICAI guidance notes; always refer to the latest ICAI guidance and consult your CA.

SECURITIES TRANSACTION TAX (STT) As noted earlier, STT is levied on options transactions. The rate applies to the option premium at the time of purchase or sale. At expiry, if the option is ITM and exercised/settled, STT is charged on the settlement value (a much higher base), which can significantly impact your actual after-tax profit. The exact STT rates are set by the Finance Act and can change; refer to the latest notification.

GST ON BROKERAGE GST is levied on brokerage and other service charges paid to your broker. This is collected by the broker and remitted to the government; you pay it as part of your transaction costs.

TAX PLANNING IMPLICATIONS For traders who generate regular income from options strategies like bear put spreads, keeping detailed records of every trade - entry price, exit price, quantity, date, and all associated charges - is not optional; it is a legal requirement. Most broker platforms (including Flattrade) provide downloadable trade history and P&L statements that can assist in tax computation. Always reconcile these with your own records.

Example

Key benefits

How it works

1. 1
   Form a Bearish View

   Identify a specific underlying (Nifty 50, Bank Nifty, or an F&O-eligible stock) where you expect a moderate price decline over a defined period, supported by technical levels, fundamental catalysts, or macro analysis.

2. 2
   Select the Long Put Strike

   Choose the higher-strike put option - typically ATM or slightly OTM - that represents your entry into the anticipated decline. This put gives you the right to profit from the downward move.

3. 3
   Select the Short Put Strike

   Choose the lower-strike put option at or near your price target for the underlying. Selling this put caps your maximum profit but significantly reduces the net cost of the trade.

4. 4
   Verify the Net Debit and Maximum Profit

   Calculate net debit = long put premium minus short put premium. Verify maximum profit = (higher strike minus lower strike minus net debit) × lot size. Confirm both figures align with your risk-reward expectations.

5. 5
   Check Liquidity and Place the Orders

   Review open interest and bid-ask spreads for both strikes on the NSE option chain. Place both legs simultaneously (or use a combination order if available on your platform) to avoid legging risk.

6. 6
   Monitor Greeks and Market Conditions

   Track the position's net delta, theta, and vega regularly. Set price alerts at your break-even, a 50% loss level, and at or near the short put strike (approaching maximum profit).

7. 7
   Exit According to Plan

   Close both legs when you have achieved your profit target (typically 70–80% of maximum profit) or when your loss threshold is triggered. Avoid holding ITM spreads to expiry to minimise the STT-on-settlement impact.

Formula

Net Debit = Long Put Premium − Short Put Premium
Max Profit = (Higher Strike − Lower Strike − Net Debit) × Lot Size | Max Loss = Net Debit × Lot Size | Break-Even = Higher Strike − Net Debit

Key takeaways

Frequently asked questions

Related terms