Bear Spread

A bear spread is an options strategy built from two options of the same type (either two calls or two puts) on the same underlying asset and the same expiration date, but with different strike prices. It is called "bear" because the position is set up to make money if the underlying stock or asset falls in price, or at least stays below a certain level.

The way it works: you buy one option and sell another, choosing strikes so that the money you receive from the option you sell partly or fully offsets the cost of the option you buy. This caps both your maximum possible profit and your maximum possible loss. For example, a bear call spread involves selling a call at a lower strike and buying a call at a higher strike; you collect a net credit upfront, and you keep that credit if the price stays below the lower strike at expiration. A bear put spread involves buying a put at a higher strike and selling a put at a lower strike, paying a net cost upfront, profiting as the price falls toward or below the lower strike.

The nuance that trips people up is that "bear spread" describes the market direction you're betting on (down), not whether you receive or pay money to open it. Some bear spreads are opened for a net credit (bear call spread) and some for a net debit (bear put spread), but both are structured to gain value as the price drops. Also, because it's a spread, both the upside and the downside are limited — you're not going to get the huge payoff of just buying a single put outright, but you're also not exposed to unlimited risk the way you would be shorting the stock itself.

People sometimes confuse a bear spread with simply "shorting" an asset. Shorting is a single unlimited-risk position; a bear spread is a defined-risk, defined-reward combination of two options, which is part of its appeal to traders who want a bearish bet with a known worst case.