Name: Bear Put Spread or Vertical Spread

Setup: Buy (long) Strike A put and Sell (short) Strike B put – same expiration month for both

Bias: Bearish with a target at the short strike

Break-Even: The long strike – debit paid

Max Profit: Limited: Strike A – Strike B – Debit Paid

Max Loss: Limited: Debit paid

Margin: No margin required

Time Decay: A neutral effect – the passing of time hurts the long call and the passing of time helps the short call

Implied Volatility: The effect of implied volatility depends on where the underlying is in relation to the strikes.  If the underlying is trading near the short call then you want implied volatility to decrease.  If the underlying is near the long call then you want the implied volatility to increase.

Notes: None at this time

Featured in Trade Review:

SPY 125/120 Put Spread