Bear Spread

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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.

BREAKING DOWN '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.

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