Bear Put Spread

The Bear Put Spread is like a bull call spread -- except with puts.  With a Bear Put Spread, you want to buy the higher strike put and sell the lower strike put.  You partially offset the cost of the higher strike put by writing (selling) a lower price put -- one that is less in-the-money.  Just like its cousin, the bull call spread, the effect is to create a “price zone” within which you will make a profit on the trade.

Bear put spreads can be executed at various points of moneyness.  Be aware however, that deep-in-the-money spreads carry the added risk of exercise if the lower strike is in-the-money.  The high probability of success, therefore, is somewhat tainted by the possibility of early exercise, an event over which you have no control.

Bear put spreads are executed as a debit, just like bull call spreads.  Your prediction is that the underlying stock will go down.  The reason you are buying a bear put spread, rather than a single put option, is that you want to mitigate your risk and decrease the net debit amount on the trade. 

In exchange for decreasing the amount of money you can lose on the trade, you are willing to forego some of the upside profit potential in the event that the underlying stock moves dramatically in your favor.