What is a put spread strategy

A put spread strategy is an options trading strategy where an investor buys one put option and sells another put option with a different strike price, both with the same expiration date. This strategy is typically used to profit from a moderate decline in the underlying stock price, with limited risk and limited profit potential.

1. Bear Put Spread: In a bear put spread, an investor buys a put option with a higher strike price and sells a put option with a lower strike price. This strategy is used when the investor expects a moderate-to-large decline in the stock price.
2. Bull Put Spread: A bull put spread is the opposite of a bear put spread. It involves selling a put option with a higher strike price and buying a put option with a lower strike price. This strategy is used when the investor expects a neutral to bullish price action in the underlying stock.

In both strategies, the investor's goal is to profit from the difference between the strike prices of the two put options, minus the net cost of the spread. The maximum profit is limited, and the maximum risk is equal to the difference between the strike prices, minus the net premium received or paid for the options.