Bear Put Spread Screener Results For December 13th

A bear put spread is a vertical spread that aims to profit from a stock declining in price. It has a bearish directional bias as hinted in the name. Unlike the bear call spread, it suffers from time decay so traders need to be correct on the direction of the underlying and also the timing.

A bear put spread is created through buying an out-of-the-money put and selling a further out-of-the-money put.

The maximum profit is equal to the distance between the strikes, less the premium paid. The loss is limited to the premium paid.

Let’s take a look at Barchart’s Short Bear Put Spread Screener for today:

Some interesting trades here with impressive Max Profit Percentage. Let’s take a look at the first item in the table – a bear put spread on Pfizer (PFE).

Pfizer Bear Put Spread Example

Using the March 17 expiry, this trade involves buying the 52.50 put and selling the 37.50 put.

The price for the trade is $2.76 which means the trader would pay $276 to enter the trade. This is also the maximum loss. The maximum gain be calculated by taking the width between the strikes and subtracting the premium paid:

15 – 2.76 x 100 = $1,224.

The breakeven price for the trade is equal to the long put strike, less the premium. In this case, that gives us a breakeven price of 49.74.

Let’s strengthen our bearish screener by adding a parameter for any stock with a Sell rating greater than 49%. Here are the results:

Disney Bear Put Spread Example

The sixth example above on DIS is also using the March expiry and involves buying the 95 strike put and selling the 75 strike put.

The cost of the trade is $555 which is also the maximum loss with the maximum possible gain being $1,445. The maximum gain would occur if Disney (DIS) stock fell below 75 on the expiration date.

The Barchart Technical Opinion rating is a 100% Sell with a weakening short term outlook on maintaining the current direction. Long term indicators fully support a continuation of the trend.

DIS is showing an IV Percentile of 48% and an IV Rank of 35%. The current level of implied volatility is 34.86% compared to a 52-week high of 57.47% and a low of 22.64%.

Of the 21 Analysts following DIS there are 15 Strong Buy, 3 Moderate Buy and 3 Hold recommendations.

Let’s look at another example, this time on Alphabet (GOOGL)

Google Bear Put Spread Example

The first Google example is using the February 17 expiry and involves buying the 95 strike put and selling the 75 strike put.

The cost of the trade is $561 which is also the maximum loss with the maximum possible gain being $1,439. The maximum gain would occur if GOOGL stock fell below 75 on the expiration date.

The Barchart Technical Opinion rating is an 80% Sell with an average short term outlook on maintaining the current direction. Long term indicators fully support a continuation of the trend.

GOOGL is showing an IV Percentile of 66% and an IV Rank of 54%. The current level of implied volatility is 36.34% compared to a 52-week high of 49.15% and a low of 21.05%.

Of the 28 Analysts following GOOGL there are 28 Strong Buy, 3 Moderate Buy and 1 Hold recommendations.

Mitigating Risk

Thankfully, bear put spreads are risk defined trades, so they have some build in risk management. The most the DIS example can lose is $555 while the GOOGL trade has risk of $561.

For each trade consider setting a stop loss of 30% of the max loss.

Please remember that options are risky, and investors can lose 100% of their investment. 

This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.

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