How do I construct a bear spread using puts, and how does it compare to a bear call spread?

A bear spread profits from a moderate decline in the underlying. You can construct it with either puts or calls, and the choice has practical implications.

Bear Put Spread (Debit Spread):

1. Buy a put at K_2 (higher strike — more expensive)
2. Sell a put at K_1 (lower strike — less expensive)

K_1 < K_2, same underlying, same expiration.

You pay a net debit (premium outflow).

Bear Call Spread (Credit Spread):

1. Sell a call at K_1 (lower strike — more premium collected)
2. Buy a call at K_2 (higher strike — less premium paid)

You receive a net credit (premium inflow).

Both produce the same payoff structure when strikes match, but the cash flow timing differs.

Bear Put Spread — Worked Example:

You're moderately bearish on Triton Logistics, trading at $55.

• Buy 1 $55 put at $4.20
• Sell 1 $45 put at $1.10
• Net debit: $4.20 - $1.10 = $3.10

Key Levels:

• Max gain: ($55 - $45) - $3.10 = $6.90 (stock falls to $45 or below)
• Max loss: $3.10 (stock stays above $55)
• Breakeven: $55 - $3.10 = $51.90

Bear Call Spread — Equivalent Example:

• Sell 1 $45 call at $11.50
• Buy 1 $55 call at $3.80
• Net credit: $11.50 - $3.80 = $7.70

Wait — this doesn't look symmetric. That's because deep ITM calls are involved. In practice, bear call spreads typically use OTM calls:

• Sell 1 $55 call at $3.80
• Buy 1 $65 call at $1.20
• Net credit: $3.80 - $1.20 = $2.60

Max gain: $2.60 (stock stays below $55)

Max loss: ($65 - $55) - $2.60 = $7.40 (stock rises above $65)

Breakeven: $55 + $2.60 = $57.60

Comparing Put vs. Call Bear Spreads:

Exam Tip: At Level I, focus on the bear put spread — construct it, compute max gain/loss/breakeven, and draw the payoff diagram. Know that a bear call spread achieves the same economic result using calls.

Practice more option strategies in our CFA Level I course.