As market volatility rises, delving into the bear put spread screener becomes pertinent.
A bear put spread, designed to capitalize on a stock’s price decline, carries a bearish slant by nature. Unlike the bear call spread, this strategy is affected by time decay, necessitating accurate forecasts on both the stock’s direction and timing.
A bear put spread involves purchasing an out-of-the-money put option and simultaneously selling a further out-of-the-money put option.
The maximum profit is determined by the gap between the strikes minus the premium paid, with losses capped at the premium paid.
Let’s delve into Barchart’s Bear Put Spread Screener findings for today:
Amidst some intriguing trades, the notable Max Profit Percentages catch attention. Let’s start by analyzing the first entry – a bear put spread on Apple.
Unveiling the Apple Bear Put Spread
Taking the October 18 expiration date, this trade entails buying the $220 put and selling the $175 put.
This trade is priced at $9.61, implying a $961 cost to enter the position, which also stands as the maximum loss. The maximum gain is the strike width minus the premium paid, calculated as $3,539.
The breakeven price for this trade is $210.39, equal to the long put strike minus the premium.
Now, let’s move on to another scenario.
Examining the Microsoft Bear Put Spread
The Microsoft example, utilizing the October 18 expiry, involves purchasing the $430 put and selling the $355 put.
This trade costs $1,829, representing the maximum loss, with a potential maximum gain of $5,671 anticipated if MSFT falls below $355 on expiration.
Notably, MSFT registers an IV Percentile of 98% and an IV Rank of 86.73%, with current implied volatility standing at 31.89%, compared to a 52-week high of 34.78% and a low of 12.98%.
Turning our attention to another example, this time featuring Alphabet.
Deciphering the GOOGL Bear Put Spread
The initial GOOGL trade, also based on the October 18 expiration, involves buying the $170 put and selling the $145 put.
Priced at $655, this trade’s maximum loss is equivalent to the cost, with a potential maximum gain of $1,845 achievable upon GOOGL stock dipping below $145 at expiration.
GOOGL registers an IV Percentile of 57% and an IV Rank of 44.08%, with the current implied volatility at 27.26%, in contrast to its 52-week high of 39.19% and low of 17.85%.
Addressing Risk Mitigation
Fortuitously, bear put spreads are defined by limited risk, providing inherent risk management benefits.
Consider implementing a stop loss at 30% of the maximum loss for each trade.
An important reminder: options are high-risk investments and can result in a 100% loss of capital.
This article serves educational purposes solely and does not constitute a trade recommendation. Always conduct thorough research and consult with a financial advisor before making investment decisions.