1. What it is
Buy the higher-strike put and sell the lower-strike put, with equal quantity and the same expiration.
2. Why use it
Pay less for a bearish put by capping gains below a lower strike.
3. How the numbers work
SPY · Teaching example · Reference price $500
All option legs have the same expiration. Premiums are per share. Each standard contract represents 100 shares.
| Side | Option type | Strike | Quantity | Premium |
|---|---|---|---|---|
| Buy | Put | 500 | 1 | 5 |
| Sell | Put | 480 | 1 | 2 |
- Net premium
- −5 × 1 + 2 × 1 = -$3.00 × 100 = -$300.00
- Maximum expiration profit
- $1,700.00
- Maximum expiration loss
- $300.00
- Expiration breakeven
- $497.00
Expiration scenarios
| Underlying at expiration | Profit / loss |
|---|---|
| 480 | $1,700.00 |
| 497 | $0.00 |
| 500 | -$300.00 |
Illustrative prices, before fees. Expiration payoffs exclude early assignment and changes in time value or volatility. Editing strikes keeps the entered premiums; no market quotes are fetched.
Explore this example ↗4. How it changes
Net delta is negative. Time and volatility effects partly offset across the legs, with net theta and vega depending on price and time remaining.
5. What to watch for
The debit is the maximum expiration loss for the intact spread. Maximum profit is strike width minus debit.
A dramatic crash below the short strike does not add expiration profit. The cheaper entry has traded away that extra downside participation.