Investing Terms
   401k Plan
   403 Plan
   529 Plan
   12b 1
   ADR
   Agency Bonds
   Annuity
   Asset Management
   Bear Spread
   Bond Yield
   Bull Spread
   Call Option
   Closed End Fund
   CMO
   Commodities Broker
   Convertible Bonds
   Covered Call Option
   Current Yield
   Custodial Account
   Debit Spread
   Defined Benefit Plan
   Defined Contribution Plan
   Diagonal Spread
   Dividend
   Eurodollar
   Fixed Annuity
   Foreign Currency Option
   General Obligation Bond
   Growth Fund
   Hedge Fund
   Horizontal Spread
   Income Fund
   Independent Broker
   Index Fund
   Index Option
   IRA
   Interest Rate Option
   Life Annuity
   Limited Partnership
   Margin Account
   Married Put
   Money Market Fund
   Mortgage REIT
   Municipal Bond Investing
   Mutual Fund Investment
   No Load Fund
   Nominal Yield
   Online Stockbroker
   Online Commodity Broker
   Stock Warrant
   Option Spread
   Option Straddle
   Online Real Estate Broker
   Stock Option
   P E Ratio
   Penny Stock Investing
   Portfolio Management
   Preferred Stock Investing
   Private Placement
   Put Option
   Put Bonds
   REIT Investment
   Repo
   Revenue Bond
   Secured Bond
   Short Sell
   SEP IRA
   Subordinated Debenture
   Tax Deferred Annuity
   Treasury Bill
   Treasury Note
   Treasury Bond
   Treasury STRIP
   Trust Account
   UGMA Account
   Unit Investment Trust
   Variable Annuity
   Yield To Maturity
   Yield To Call
   Zero Coupon Bond



   Courses
   Insurance CE
   Marketing Training
   Advertising
   Contact Us
   Home


Bear Spread Trading

Buying and selling of the same type of option can result in establishing a spread. Trading a spread with the hope that the market declines means you have created a bear or bearish spread.

Bear spreads will profit if the market in the underlying stock declines. Investors can trade call spreads or put spreads. A call bearish strategy means you want both calls to expire, so you can keep your premium credit that was earned. Trading puts will be profitable in a down market, thus having the puts traded or exercised will result in a profit.

Call Bear Spread Example

Buy 1 WDF Sep 40 Call@4
Short 1 WDF Sep 30 Call@7

The above example will show a bearish strategy. The investor is buying a call option with a September expiration, a stike price of 40 (the right to buy the stock at) and he is paying a $400 premium. This buy call is a bullish option by itself. The Short position is in a call option with a strike price of 30 (the obligation to sell at price), and the investor is receiving a $700 premium.

This investor thinks the market will go down. He is collecting a $300 credit on the spread (the difference in the premiums paid and recieved), and he hopes the option expire. Having the market go down in a bearish direction will help this along. He is most certainly NOT bullish. If the market goes up and both options are exercised, he will be covering the short option at a price of $30 with a long option at a price of $40. He will lose money on the 10 point strike price spread.

The maximum gain in this trading spread strategy is $300. If both options expire, the maximum gain is achieved. This is a call bear spread.

Put Bear Spread Example

Puts can be bought and sold to create a spread. These spreads can be bullish or bearish. A bear position would be as follows:

Buy 1 DFT Oct 80 Put@6
Short 1 DFT Oct 70 Put@2

In this case, the investor is long the bearish option (a buy put is a bear option position), has the right to sell the stock at 80 and is paying a $600 premium. The option he is shorting has a 70 strike price (short put holders must buy the stock at the strike price) and is getting a $200 premium.

This is resulting in a net debit of $400. Since the investor has a loss of $400 and is controlling puts, the only way he will make money is if the options can be traded or exerised at a profit before the options expire.

The maximum gain would be if the market declined (bear) and both options were exercised. This would allow the customer to profit 10 points on the options. The difference between 80 and 70. The investor loses the premium debit of $400, so the new gain potential is $600 ($1000 - $400).

This is a bear put spread.

This type of trading is profitable in a declining market when using call options and collecting a premium credit or using puts when the investor has lost money initially on the premiums spend and received when the trading strategy was initiated.

Trading Programs - Professional investing and training:

Option Income System

Over 40 Videos with more than 20 HOURS of Training that can be Accessed INSTANTLY - RIGHT NOW - 100% ONLINE! Immediately after joining you'll have access to our Members Only Website Area where you can instantly download the videos directly from our website to your computer and within minutes be watching them from your computer at home.

VISIT Option Income System(VIEW MORE)

Intrinsic Value Contracts

Trading and Investing Resources

Copyright American Investment Training, Inc.