Bear Put Spread

Assignment risk only exists on the short put (the one you sold). If the underlying closes below your short put strike and you hold through expiration, you may be assigned. However, since you own the long put, you're protected - you can exercise your long put to offset. Most traders close spreads before expiration to avoid assignment.

It depends on your outlook. A bear put spread costs less and reduces your maximum loss, making it better for moderate bearish views. However, if you expect a massive crash, a long put has much larger profit potential. The spread caps your profit at the short strike. Choose based on your price target and risk tolerance.

Yes, many Canadian brokers allow vertical spreads in TFSA accounts. Questrade, Interactive Brokers, and TD Direct Investing generally permit bear put spreads in TFSAs. However, you'll need to apply for options trading approval and ensure your broker specifically allows spreads in registered accounts.

If the stock closes exactly at your short strike, your long put has intrinsic value equal to the spread width, and your short put is at-the-money (worth zero or very little). You'll capture close to maximum profit. It's best to close before expiration to avoid any assignment uncertainty.

The capital needed equals your net debit per contract times 100 shares. For Canadian stocks, typical spreads cost $200-500 per contract. With a $5,000 account and 2% risk per trade ($100 risk), you could trade 1-2 contracts. Start small while learning the strategy.

If your short put is deep ITM before an ex-dividend date, there's early assignment risk. The put holder might exercise to short the stock and capture the dividend. Monitor dividend dates and consider closing deep ITM spreads before ex-dividend to avoid complications.

Monthly options typically have better liquidity and tighter bid-ask spreads. Weekly options are available on XIU and major bank stocks but have faster time decay and require more precise timing. Use monthlies for learning; consider weeklies only for specific short-term trades.

Either close before earnings to avoid IV crush and gap risk, or specifically use a post-earnings expiration. If holding through earnings, expect IV to drop 20-40% after the announcement. Even if the stock moves in your direction, the IV crush can reduce your spread's value temporarily.

Generally 30-45 DTE offers the best balance of cost and time for your thesis. Shorter than 21 DTE has aggressive theta decay; longer than 60 DTE costs more and ties up capital. Match expiration to your expected catalyst or price target timeline.

Consider taking profits at 50% of maximum profit. At this point, you've captured half the potential gain while removing the risk of price reversal. The remaining 50% becomes increasingly difficult to capture due to gamma effects. Risk/reward often favors early exit.

When the term structure is in contango (near-term IV < far-term IV), near-dated options are relatively cheap - favor shorter-dated spreads. In backwardation (near-term IV > far-term IV), near-dated options are expensive - either use longer-dated spreads or wait for volatility to normalize. Monitor the VIXC futures term structure for macro guidance.

Calculate your total negative delta from bear put spreads and offset with positive delta positions. Options include bullish spreads on correlated assets, long calls as portfolio addition, or delta-hedging with long ETF positions. Monitor net delta daily and rebalance when it drifts beyond target range.

Vanna measures delta sensitivity to IV changes. In volatile markets, rising IV can make your OTM spread's delta more negative, making it more directionally sensitive than expected. Falling IV does the opposite. Account for vanna when sizing positions in high-volatility environments to avoid unexpected delta exposure.

A bear put spread and bear call spread at the same strikes have equivalent payoffs. Compare the net debit of the put spread versus the net credit of the call spread. If the put spread costs $2.00 but the equivalent call spread collects $2.20 credit on $5 wide strikes, the call spread is more efficient by $0.20 per share.

Build a quantitative screen: 1) Price < 20 SMA < 50 SMA (downtrend), 2) RSI 30-50 (weakness without oversold), 3) IV Rank < 50 (cheap options), 4) Average volume > 100K (liquidity), 5) Sector showing relative weakness. Backtest this criteria across market regimes and optimize parameters for your risk tolerance.