Bear spread: Difference between revisions
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Revision as of 14:10, 23 October 2012
1. Options speculation. A composite speculative deal in two options, which results in a profit/loss profile similar to a conventional put option, except that the upside potential is capped in return for a reduction in the net premium payable.
A bear spread can be constructed using put options by buying a put with a given strike price, and selling an otherwise identical put with a lower strike price. It can also be constructed using appropriate call options.
2. Hedging with options. A composite transaction in two options plus an underlying asset or other exposure, resulting in the same profit/(loss) profile as the deal described in 1. above.
See also