Economics Options And Futures Questions
The concept of a bear put spread in options trading involves the simultaneous purchase and sale of put options on the same underlying asset with different strike prices. This strategy is used by traders who anticipate a moderate decrease in the price of the underlying asset. The trader buys a put option with a higher strike price and sells a put option with a lower strike price. The goal is to profit from the decline in the asset's price while limiting potential losses. The maximum profit is achieved when the price of the underlying asset is below the lower strike price at expiration, while the maximum loss is limited to the initial cost of the spread.