Bear Spread

AAA

DEFINITION of 'Bear Spread'

1. An option strategy seeking maximum profit when the price of the underlying security declines. The strategy involves the simultaneous purchase and sale of options; puts or calls can be used. A higher strike price is purchased and a lower strike price is sold. The options should have the same expiration date.

2. A trading strategy used by futures traders who intend to profit from the decline in commodity prices while limiting potentially damaging losses.

INVESTOPEDIA EXPLAINS 'Bear Spread'

1. You make money if the underlying goes down and lose if the underlying rises in price.

2. A bear spread is created through the simultaneous purchase and sale of two of the same or closely related futures contracts. This is accomplished in the agricultural commodity markets by selling a future and offsetting it by purchasing a similar contract with an extended delivery date.

RELATED TERMS
  1. Multi Index Option

    A type of investment in which the payoff depends on the difference ...
  2. Current Delivery

    A type of futures contract that requires the delivery of the ...
  3. Bull Vertical Spread

    An bullish strategy used by investors who feel that the market ...
  4. Delivery

    The action by which an underlying commodity, security, cash value, ...
  5. Futures Contract

    A contractual agreement, generally made on the trading floor ...
  6. Bull Spread

    An option strategy in which maximum profit is attained if the ...
Related Articles
  1. Options & Futures

    Options Basics Tutorial

    Discover the world of options, from primary concepts to how options work and why you might use them.
  2. Options & Futures

    Vertical Bull and Bear Credit Spreads

    This trading strategy is an excellent limited-risk strategy that can be used with equity as well as commodity and futures options.
  3. Insurance

    Futures Fundamentals

    For those who are new to futures but want a solid understanding of them, this tutorial explains what futures contracts are, how they work and why investors use them.
  4. Options & Futures

    What is the difference between a short position and a short sale?

    Learn how short selling and short positioning are different, specifically in regards to the nature of the commodity being bought and sold.
  5. Options & Futures

    Are there any risks involved in trading put options through a traditional broker?

    Explore put option trading and different put option strategies. Learn the difference between traditional, online and direct option brokers.
  6. Options & Futures

    Options -- Accessing Stakes In Apple At Less Cost

    Finding Apple stock costly to trade? Here are multiple ways to trade it through low-cost Apple options.
  7. Investing Basics

    The Strange New World Of The Bitcoin Exchange Futures Market

    We explain the basics of the Bitcoin exchange and futures market.
  8. Options & Futures

    These Are The Top Brokerage Firms For Options Trading

    Trading options? Here is the list of the best brokerage firms for options trading, with features, functionality, and brokerage rates.
  9. Options & Futures

    What is a volatility smile?

    Discover what options traders mean when they refer to a "volatility smile," and learn why a volatility smile's existence perplexes many investors and analysts.
  10. Options & Futures

    How do you use put options to profit from a bear market?

    Learn how traders use put options in their trading strategies to remain profitable, even in a bear market. Everyday investors can learn these tactics, too.

You May Also Like

Hot Definitions
  1. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  2. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  3. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  4. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  5. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  6. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
Trading Center