Bear Put Option Screener

Hi, and welcome to the Options Learning Center. I'm going to show you how to buy bear put spreads and use Barchart to get the most out of the strategy.

What Is A Bear Put Debit Spread?

A bear put spread, also known as a put debit spread, is a vertical spread strategy that involves purchasing a put option that is close to, or at-the-money, while simultaneously selling a put option with a lower strike price on the same underlying asset and expiration date. The result is a net debit, or an amount you have to pay to enter the trade.

Bear Put Spread

• Vertical Spread Strategy
• Buy Put: Pay premium
• Sell Put (Lower Strike): Receive premium
• Net Debit: Difference in premiums

The goal of buying a bear put spread is for the underlying asset's price to be below the short put's strike price so both options expire in-the-money. If that happens, investors can then close out the trade and collect a profit.

Bear Put Spread Goal

• The stock price is below short put
• You profit when both options are in-the-money
• You close the trade for profit

Put debit spreads are used when an investor wants to reduce the costs of buying a long put, while participating in the decline of an underlying security. Also, maximum loss is limited to the net debit paid. The maximum profit for a bear put is the difference between the two strike prices, also known as the width of the spread, minus the net debit paid.

• Reduce costs of a long put
• Max Loss is the Net debit paid
• Max Profit is the Spread width minus debit

Trade Examples

Let's have a look at Barchart to find potential put debit spreads.

Screening The Market For Potential Bear Put Trades

Let's say that you think the overall market will go down a bit in the next month, but you don't have a specific asset in mind to use for a bear put trade.

Barchart makes it easy to look for bear puts. To see potential trades using that strategy, simply navigate to Barchart.com, click on the Options tab, and then click on Bear Put Option Screener.

The first thing you'll see is the Results page, where you can immediately look through likely bear put trade considerations. The results page also provides other important information like bid/ask prices, premium, trade leg details, max profit and losses, and ITM probability.

For a bear put spread, Leg 1 is the long put, while Leg 2 is the short put with the lower strike.

Now, let's talk about how to customize your results.

Customizing the Screener

You may prefer to tailor-fit your screener to reflect different strategies and risk profiles.

To customize your screener, click on the Set Filters tab. You can select from dozens of filters, such as option details, analysis, and even underlying stock information.

The Bear Put Screener has several default filters. It's a good idea to leave the default filters in place, and then add what you need.

I usually trade options that expire at least a month or two out. That way, I have time to adjust my trades if necessary to avoid or mitigate losses.

Once your filters are set, click the See Results button.

Now you have a list of potential trades.

You can sort them by clicking on any column heading. For example, clicking on the ITM Probability column header will arrange the list from highest to lowest probability.

For this example trade, let's look at this one for META.

The long put strike is $485, for which you'll pay $39.85. The short put strike will be $480, and you'll receive $36.60, making a net debit $3.25 per share, or $325 per contract.

$39.85 - $36.60 = $3.25

The trade has a 55.18% chance of expiring ITM—decent odds—and will expire on September 20, 2024; plenty of time to adjust if things don't go to plan.

Let's examine how this trade can go.

Bear Put Expires in-the-money (Profit)

It's expiration day, and META stock is trading at $470, below your $480 short strike price. This means you get the maximum profit for the trade.

To calculate the maximum profit, take the difference between the width of the spread, and the net debit. For this example, that's $1.75 a share, or $175.

(($485 - $480) - $3.25) = $1.75 or $175 total

Bear Put Expires Out Of The Money

On the other hand, if META trades above the long strike price at expiration, say $490, you will hit the maximum loss condition. The maximum loss is simply what you paid for the trade (the net debit) calculated by subtracting the premium received from the premium paid.

For this trade example, that's $3.25 a share, or $325 per contract.

$39.85 - $36.60 = $3.25 or $325 total

Profit/Loss Across Different Price Points

Let's examine what the profit and losses would look like based on the underlying's trading prices.

First, you'll want to know the trade's break-even point to better understand how it goes across different price points.

To get the break even point on a bear put spread, take the long put strike price and subtract the net debit to get the breakeven point.

$485 - $3.25 = $481.75

Since bear put spreads have defined profit and loss potentials, the profits and losses do not exceed $175 and $325.

As Meta's price rises above the breakeven point, losses start to incur, and anything above $485 means a maximum loss of $325.

However, if META does as you expect and stays below $480, then you earn $175.

Screening For Bear Puts Using a Specific Underlying Asset

If you want to search for bear put trades with a specific underlying asset in mind, all you need to do is go to the stock or asset's Price Overview page on Barchart.com. Once there, look at the menu on the left and click Vertical Spreads under the Options Category.

Click on the Bear Put tab.

You can change the expiration date by clicking on the Expiration drop-down.

You may also change which trades to review based on the strike prices. To do that, use the Show Only dropdown and select from Leg 1 (the long put strike) or Leg 2 (the short put strike). Then, indicate the price you want to view in the Strike field, and click apply.

To further customize your trade, click on screen at the top-right of the page. This takes you to the Bear Put Options Screener, selecting only your symbol's options expiring on the selected date, with the selected strikes.

Once in the Bear Put Option Screener, you may then add filters to narrow down these trades. It's that simple.

Assignment Risks

When you sell an option, there's always the risk of assignment. Options are usually exercised at expiration, giving you time to close out your trade at a profit or loss. However, there is a risk of early assignment.

With American style options, assignment can happen any time. And since you want the debit spread to end up in-the-money, there's an elevated risk you'll be assigned on the trade.

• Options normally are exercised at Expiration
• There is an early assignment risk with American Options

If you happen to get assigned on your put debit spread, that means you'll end up buying 100 share of META for $480.

However (here's the key) you'll then also be able to sell your shares by exercising you long put option. That means you'll sell your shares at the $485 long strike price, for a difference of $5 (your spread width and your gross profit.) Of course, you paid $3.25 to get into the trade, making your net profit $1.75.

• Buy 100 Shares of META at $480 each
• Sell 100 Shares of META at $485 each
• Gross Profit: $5.00
• Initial Premium (Debit): $3.25
• Net Profit: $1.75 (or $175 per contract)

Pros and Cons

Bear puts have several advantages over other trades.

First, your risk is limited to the amount you paid to set up the trade.

It is also more affordable than buying a long put alone, since the premium received from the short put will offset some of the costs of buying the long put, making it perfect to use for small trading accounts.

Lastly, you'll also know from the outset the maximum potential profit and loss for the entire trade, with no nasty surprises that could happen. That makes it excellent for risk management.

• Limited Risk
• Lower Cost
• Easy Risk Management

However, bear puts do have some disadvantages.

Protection costs something in trading, and this is no exception. In exchange for limited losses, you also have limited profits.

Furthermore, the underlying asset's price must be below the short strike price at expiration to hit the maximum profit condition. Otherwise, you could end up with a loss.

Bear puts are also more complex than single-leg trades, making them harder for new traders to manage.

• Limited Profit
• Requires Precise Movement
• Complex Strategy

Conclusion

While bear puts offer a balanced risk-reward profile with known maximum gains and losses, it requires accurate prediction of the underlying asset's movement and careful management to achieve optimal results. Never trade blind! Always use tools and resources like the Barchart's Bear Put Option Screener and supplement your trading knowledge through the Barchart Options Learning Center.