Bear Spread
What Does Bear Spread Mean?
- Bear spread refers to the option that seeks highest profit in case of the decline of the rate of underlying asset. In this strategy, the investor make simultaneous buy and sell of call or put options. Sale is made for the lower strike price and buy is made for the higher strike price. However, it is necessary that the expiration date is same for both.
- Futures traders that wish to earn from decline of commodity rates normally use this strategy.
How Does It Applied in Options Market?
This strategy is beneficial in case the price of the underlying declines, but works otherwise, if the rates rise.