There are two ways to define Bear spreads, which are as follows :
- An option strategy seeking maximum profit when the price of the underlying security declines. The strategy involves the simultaneous purchase and sale of options; puts or calls can be used. A higher strike price is purchased and a lower strike price is sold. The options should have the same expiration date.2. A trading strategy used by futures traders who intend to profit from the decline in commodity prices while limiting potentially damaging losses.
You make money if the underlying goes down and lose if the underlying rises in price.
A bear spread is created through the simultaneous purchase and sale of two of the same or closely related futures contracts. This is accomplished in the agricultural commodity markets by selling a future and offsetting it by purchasing a similar contract with an extended delivery date.
A bear spread is an option spread strategy used by the option trader who is expecting the price of the underlying security to fall.
Vertical Bear Spreads
The vertical bear spread is a vertical spread in which options with a lower striking price are sold and options with a higher striking price are purchased. Depending on whether calls or puts are used, the vertical bear spread can be entered with a net credit or a net debit.
Vertical Bear Credit Spread
A vertical bear spread can be established for a net credit if call options are used. The strategy is also known as the bear call spread.
Vertical Bear Debit Spread
A vertical bear spread can be established for a net debit if put options are used. The strategy is also known as the bear put spread.
Horizontal & Diagonal Bear Spreads
The bear calendar spread and the diagonal bear spread are both time spread strategies used by option traders who believe that the price of the underlying security will remain stable in the near term but will eventually fall in the long term.