Bear Put Spread

You sell the lower strike put to reduce the cost of your bearish bet. The premium you receive from selling subsidises your purchase of the higher strike put. Yes, this caps your downside profit, but it significantly reduces your cost and breakeven. For moderate bearish moves, this is an excellent trade-off.

Your profit is capped at the spread width minus your cost. If FTSE drops to 7,000 but your short strike is 7,500, you still only make the max profit (£180 in our example). The short put's obligation is covered by your long put's greater value. You don't lose money - you just don't participate in further declines.

Yes, options can be exercised early. If your short put is deep ITM, you may be assigned (forced to buy underlying at the short strike). However, your long put protects you - you can exercise it to sell at the higher strike. Your risk is always limited to the original debit paid.

Yes, significantly. When you short futures, your potential loss can be substantial if the market rises. With a Bear Put Spread, your maximum loss is the premium paid - it's defined before you enter. This makes it a much safer way to express a bearish view.

For most UK retail traders, spread betting has a major advantage: profits are tax-free. However, exchange-traded options may have better pricing and execution. Consider your tax situation and trade size. For smaller accounts, tax-free spread betting is often preferable.

Use Bear Put Spread (debit) when: IV is low (buying cheap options), you want to be right about direction, you're okay paying upfront. Use Bear Call Spread (credit) when: IV is high (selling expensive options), you want time decay on your side, you're comfortable with margin requirements.

If down 30-40% and thesis still valid: hold if within your time window. If down 50%: close and take the loss per your rules. Rolling up (to higher strikes) rarely makes sense - it's usually better to take the loss and find a new opportunity. Don't fight a strong uptrend.

Generally avoid if possible. Weekends introduce risk of positive news (deal announcements, analyst upgrades) that can gap markets higher. If you're near your stop loss on Friday, consider closing. If you're in profit and near target, definitely close.

Yes, this is an excellent use case. Buy FTSE 100 Bear Put Spreads sized at 1-2% of portfolio value for general market protection. This is cheaper than buying puts outright and provides defined-cost insurance against market declines.

Put skew means OTM puts have higher IV than ATM puts. In a Bear Put Spread, you're selling an OTM put (receiving inflated premium) and buying an ATM put (paying fair premium). This skew effectively subsidises your position more than in a world without skew.

Pre-BoE: Spreads mitigate IV crush risk but cost more due to elevated IV. Size smaller. Post-BoE: Enter after announcement if bearish thesis confirmed - IV has crushed so entry is cheaper. For major BoE decisions, consider waiting for market reaction before entering.

Consider conversion when: market entering potential crash/panic mode, VFTSE spiking above 30+, technical breakdown confirmed with volume. Buy back the short put to unlock unlimited downside profit potential. Be aware this significantly increases your cost basis and exposure to IV changes.

The 30-day rule means if you sell and repurchase the same asset within 30 days, you can't use the loss for CGT purposes. For options, different strikes or expirations are typically considered different assets, giving more flexibility. Consult a tax advisor for specific situations.

In contango (normal): use standard 30-45 DTE selection. In backwardation (front-month IV elevated): front-month spreads are expensive - consider going to 45-60 DTE for relatively cheaper entry. Monitor term structure shifts as they can affect spread pricing significantly.

In the positive gamma zone (underlying above short strike): sell underlying on drops to lock in delta gains, buy back on rallies. This extracts value from oscillations. As underlying approaches short strike, gamma flips negative - delta hedging becomes costly and you should consider closing the position instead.