The long put spread is when you expect a decrease in price, and involves purchasing put options at a specific strike price and selling at a lower strike price to limit the potential loss & profit.
Long Put Spread, Vertical Spread
A bear put spread is an options trading strategy that involves purchasing put options at a specific strike price and selling the same number of put options at a lower strike price. The strategy is used when the trader expects the underlying asset to decrease in price but wants to limit the potential loss by capping the maximum potential profit.
The goal of a bear put spread is to profit from a decline in the price of the underlying asset. The trader earns a profit if the price of the underlying asset at expiration is below the lower strike price of the short put option. The maximum profit is achieved when the underlying asset’s price is equal to the lower strike price of the short put option, and the maximum loss is equal to the difference between the strike prices of the long and short put options, minus the premium received from the sale of the short put option.
Leg 2 minus the net debit for spreads paid
Stock to be at or below Leg 1 at expiration.
Profit is limited to the difference between Leg 1 and Leg 2 minus the net debit paid.
Limited Risk to the net debit paid.
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