Bear spread

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Payout chart at a bear market spread

A bear spread (English bear spread or bearish vertical spread ) is an option strategy with which to a fall in the price of the underlying speculation. The underlying is often an index , but any other underlying can be used.

To construct a bear spread, one buys a call option ( one takes the long call position) and at the same time sells a call option (one takes the short call position). As a rule, the exercise date of the two options is the same, but the long call position has a higher exercise price than the short call position.

A bear spread can also consist of two put options ( puts construct), all other properties of the options remain the same.

With this strategy, a profit is made by a falling price of the underlying asset. However, the profit only increases until the price of the underlying asset reaches the lower of the two exercise prices. Further falling prices do not bring any further profit. The loss is also limited. This no longer expands if the price of the underlying exceeds the higher of the two exercise prices. The maximum loss means the total loss of the option premium paid for the long position, minus the option premium received for the short position.

The opposite of a bear spread is a bull spread .