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Bear Put Spread: You can make money even if it falls
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Article 2: Bear Put Spread: You can make money even if it falls
Choices when going short
You think a certain stock is going to fall. Three ways:
| Way | cost | risk | Suitable |
|---|---|---|---|
| Buy directly Put | high | Loss of all royalties | Convinced of a big drop |
| short stock | high | Theoretically unlimited | professional player |
| Bear Put Spread | Low | limited | Mildly bearish |
Advantages of Bear Put Spread: low cost and controllable risks.
How it works
- Buy high strike price Put (spend money to give you downside protection)
- Sell low strike price Put (collect money, reduce costs)
Selling that Put subsidizes the costs, but also caps your profits.
Complete example
Scenario: TSLA The current price is 250, and you think it will drop to 235-240.
Hyperstock Recommended results:
Recommended pairing #1 (Score: 8800)
Buy: TSLA $250 Put (June 20)
Premium: $8.00 Sell:
TSLA $235 Put (June 20)
Royalty: $3.50
Net cost: $4.50 Maximum benefit: $10.50 ($15 spread - $4.50 cost)
Breakeven point: $245.50
Maximum loss: $4.50 (net cost)
Yield: +233%
Various scenarios:
| TSLA Expiration price | result |
|---|---|
| $260 (up) | Lost $4.50 (maximum loss) |
| $250 (same) | Lost $4.50 (maximum loss) |
| $245.50 | break even |
| $240 | Earn $5.50 |
| $235 | Earn $10.50 (maximum profit) |
| $220 (lower than) | Still making $10.50 (capped) |
Risk control
Bear Put Spread itself is a risk control tool:
- The maximum loss is known: the maximum net loss cost
- No deposit required (debit spread, fully paid)
- No need to borrow bonds to go short
- Don’t be afraid of skyrocketing: the maximum loss is the net cost
But be careful:
- Both contracts have to be traded, and the one with poor liquidity may have a large slippage.
- Time is against you (buying Put is negative Theta)
- If the stock price moves sideways, the time value will be lost every day.
Comparison with buying Put directly
| Buy directly Put | Bear Put Spread | |
|---|---|---|
| cost | high | Low (sell for recovery) |
| maximum benefit | Very big (the stock price returns to zero) | Limited (capped) |
| maximum loss | total royalties | Net cost (less) |
| How much does it need to fall | You have to fall a lot to make money | You can make money if you fall a little bit |
Conclusion: If you believe in a mild decline rather than a crash, Bear Put Spread is a better deal.
when to use
- Hedging before the earnings report: If you hold a position in this stock, you are afraid of a sharp drop after the earnings report.
- Technical level break: key support level fell below, expected to fall
- High valuation correction: I think it has risen too much, so I need to make a correction
- Hedging Positions: Protecting exposure to other long positions
⚠️ Risk reminder: Bear Put Spread Although the risk is limited, if the stock price does not fall but rises or trades sideways, you will lose the entire net cost. Make sure your bearish call is well-founded.
