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:

Feature	Bear Put Spread	Bear Call Spread
Initial cash flow	Pay net debit	Receive net credit
When profitable	Stock declines below breakeven	Stock stays below upper strike
Preferred when	IV is low (options are cheap)	IV is high (sell expensive premium)
Assignment risk	Low (you own the higher-strike put)	Higher (short call may be exercised)

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.