Bear Put Spread

  

Categories: Stocks, Derivatives, Trading

Also known as a long put spread, an investor can use this strategy when they anticipate a drop in the market price. The investor creates the spread by purchasing put options (options but not obligations to sell at a certain price in a certain timeframe) at a specific strike price (basically sell price), while also selling the same number of puts with the same expiration date at a lower strike price.

The potential profit is the difference between the two strike options (minus the price at which the shares were originally purchased). By buying in equal portions, the investor limits their net risk (how much money they can lose).

Related or Semi-related Video

Finance: What is a Bear Hug?7 Views

00:00

Finance a la shmoop what is a bear-hug? well you remember old uncle [Uncle Larry appears]

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Larry right the former 350 pound Olympic wrestler who could braid his own chest

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hair yeah kind of gross but no that's the guy well he got out of the bathtub [Larry in a bath tub]

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once while y'all were at your ski cabin in Wyoming and a real bear saw him

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through the window and well simply put fell in love yeah that's how

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Bears do it well Larry went over to the bear family [Larry wearing bear fur]

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for Christmas and when he walked in a little bear dude guy screamed Mom, there's a

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human in the cave but Larry fit right in he hugged each of the Bear Jamboree [Larry hugging a bear]

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family really hard they wanted to call it a human hug but well somehow the name

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didn't stick so uncle Larry is that guy well he hugged at Christmas

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bears humans and whatever he hugged hard.. hard enough to squeeze the air out of

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anyone or anything and if he suddenly let go well you had a really hard time [Larry lets bear go and bear struggles to breathe]

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catching your breath well that's the setting of a Wall Street bear hug, a big

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hairy powerful player often recently bathed ideally yeah not still in the

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bathtub making a bid to buy a weaker competitor at a price substantially

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higher than the current market price of the target it's a hug and the target had [Larry chasing a man for a hug]

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better hugged back and be acquired or else why because if the bear hugger

01:29

suddenly lets go while the target falls back from the $28

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a share of the bear is offering to buy it falls all the way back to the 15

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dollars it was trading at before all that you know hugging started and if the

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bear walks away and the company just languishes at 15 bucks a share without [Bear walks away with company]

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any other bidders.. the board gets their pants sued off by shareholders who

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are just "robbed" of $13 a share in gains likely meaning that the

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entire company reboots and in hindsight well that it would have been oh so much

02:01

better to let Larry just move into the cave where you know he really felt at [Larry in the cave with bears]

02:05

home with everyone there check out those salmon..

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