Bear Spread Options Trading Strategy

From the article "Bull Spread Options Trading Strategy," readers understood that the strategy suits an underlying asset with a moderately bullish trend but not too strong. It can be constructed using either Call Options or Put Options.

This article reveals an options trading strategy suitable for an underlying asset with a bearish trend that is not sharply declining, providing an alternative for speculating in a downtrend market.

Information from the Futures and Options team at Bualuang Securities states that the Bear Spread Options strategy is a trading approach with a moderately negative view on the underlying asset. It can be implemented using both Call and Put Options. This strategy limits both potential profit and loss, with the payoff graph shown in Figure 1.

Bear Call Spread

The Bear Call Spread strategy involves buying a Call Option with a higher strike price while simultaneously selling a Call Option with a lower strike price, using an equal number of contracts on the same underlying asset and expiration date. This strategy generates a net premium received because the sold Call Options have a higher premium than the purchased ones. Despite the term "Bear" implying a bearish market, this strategy is constructed using Call Options.

Example: Mr. C Expecting the SET50 index to decline moderately, he chooses the Bear Call Spread strategy by buying S50Z26C1100 at 16 points and selling S50Z26C1070 at 37 points, one contract each (example excludes fees).

From this strategy, it is found that

• the maximum loss is 1,800 baht, calculated as the difference between the strike prices minus the net premium received: ((1100 – 1070) – 21) x 200 = 1,800 baht.
• the maximum profit is 4,200 baht, which equals the net premium received, occurring if the SET50 index remains below 1,070 points at expiration.
• The breakeven point for this strategy occurs when the SET50 index is below 1,091 points, calculated as the lower strike price plus the net premium received (1,070 + 21) = 1,091 points.

Bear Put Spread

The Bear Put Spread strategy is created by buying Put Options with a higher strike price and selling Put Options with a lower strike price, using equal contract amounts on the same underlying asset and expiration date. This strategy requires paying a net premium because the purchased Put Options are more expensive than the sold ones.

Example: Mr. D Expecting the SET50 index to decline, he selects the Bear Put Spread strategy by buying S50Z26P1080 at 26 points and selling S50U26P1060 at 17 points, one contract each (example excludes fees).

From this strategy, it is found that

• the maximum loss is 1,800 baht, equal to the net premium paid, if the index closes above 1,080 points.
• the maximum profit is 2,200 baht, calculated as the difference between strike prices minus the net premium paid: ((1080 – 1060) – 9) x 200 = 2,200 baht.
• The breakeven point for this strategy is at 1,071 points, calculated as the higher strike price minus the net premium paid (1,080 - 9).

This article has explained the Bear Spread options trading strategy for an underlying asset with a moderately bearish trend. Some readers might wonder why not just buy Put Options alone for a bearish outlook. The advantage of this strategy is that it requires paying a lower premium compared to buying Put Options alone, though the trade-off is that profits are capped if the directional prediction is correct.

For traders interested in learning other options trading strategies, they can open an account with Bualuang Securities with the following details:

How to open a futures trading account

Bualuang Securities clients can easily apply online through two channels as follows:

1. Via the Wealth Connex app (Menu: Solution > Futures Trading Account)
2. Via the Streaming app (Menu: BLS > Futures & Options > Open Account)

The general public can open an online stock trading account quickly and easily via the Wealth Connex app, then apply online for a futures trading account as described above. For more information, click here.https://www.bualuang.co.th/article/opentfexaccountbywealthconnex

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