Important notice
The information on this web site is provided solely for general education and information purposes and therefore should not be considered complete, precise, or current. Trading in stocks and options involves risk. You can lose money. You should always seek professional advice from your stock broker. We are not stockbrokers and do not make recommendations to buy or sell any stock or option. We provide educational information for your evaluation.

Return to option strategies

With the bear put debit we look for a stock that is in a down trend.

• We will buy a put option in the money.
• We write a put option out of the money.
• We use the same expiration date and the same number of contracts;
• Each contract is equal to 100 shares.

XYZ stock is trading at 21.00

• We buy the April 22.50 strike price option put for 2.50 (-250.00)
• We write the April 20.00 strike price option put for 1.00 (+1.00)
• We invested 2.50 and received a premium credit of 1.00 we have a Debit of -1.50 (-150.00).

XYZ stock moves down to 19.00 by expiration date.

1. Because we wrote a put option at 20.00 strike price, we have the obligation to buy XYZ stock     from the put buyer at 20.00. We are now invested 20.00 x 100 =$2000.00

2. We did buy a put option with the strike price at 22.50 this gives us the right to sell the underlying stock to the option writer for $22.50 x 100 = we receive $2500.00

3. We buy the XYZ stock for 20.00 sell it for 22.50 we now have 2.50 minus the put debit of -1.50, leaving us with $ 1.00 (100.00) profit.

XYZ stock moves up to 23.00 our maxim loss is the -1.50 x 100 = 150.00 debit from buying the put option and the put option we wrote expires worthless as the put we bought.

XYZ stock trades at 21.00 by option expiration we can buy it at 21.00 and sell the XYZ stock at 22.50 to the put writer 1.50 profit miners the 1.50 debit we break even, or keep XYZ stock to do covered calls or we can sell the April 22.50 strike price put that we bought and receive about a 1.50, miners the debit of 1.50 break even again, the put we wrote expires worthless.

All we are doing here is presenting to you several possibilities.

The above dollars figures, do not take in to consideration brokers fees and margin cost, etc.