3 Bear Put Spread Trade Ideas For This Tuesday

A bear put spread is a vertical spread that aims to profit from a stock declining in price. It has a bearish directional bias as hinted in the name. Unlike the bear call spread, it suffers from time decay so traders need to be correct on the direction of the underlying and also the timing.

A bear put spread is created through buying an out-of-the-money put and selling a further out-of-the-money put.

The maximum profit is equal to the distance between the strikes, less the premium paid. The loss is limited to the premium paid.

With the market looking a bit volatile here, it could be a good idea to add some bearish trades to your options portfolio.

Let’s take a look at Barchart’s Bear Put Spread Screener for today:

Some interesting trades here with impressive Max Profit Percentage.

Let’s strengthen our bearish screener by adding a parameter for any stock with a Sell rating greater than 40%. Here are the results:

Let’s take a look at the first item in the table – a bear put spread on Meta Platforms (META).

Starbucks Bear Put Spread Example

Using the April 17 expiry, this trade involves buying the $640 put and selling the $620 put.

The price for the trade is $12.50 which means the trader would pay $1,250 to enter the trade. This is also the maximum loss. The maximum gain be calculated by taking the width between the strikes and subtracting the premium paid:

20 – 12.50 x 100 = $750.

The breakeven price for the trade is equal to the long put strike, less the premium. In this case, that gives us a breakeven price of $627.50.

The Barchart Technical Opinion rating is a 72% Sell with a Strongest short term outlook on maintaining the current direction.

Of the 55 Analysts following META there are 44 Strong Buy, 3 Moderate Buy and 8 Hold recommendations.

Oracle Bear Put Spread Example

The first Oracle (ORCL) example is also using the April 17 expiry and involves buying the $190 strike put and selling the $185 strike put.

The cost of the trade is $330, which is also the maximum loss with the maximum possible gain being $170. The maximum gain would occur if stock closes below $190 on the expiration date.