Series 3: 5.3.3. Debit Put Spread

5.3.3. Debit Put Spread

With a debit put spread, also called a bear put spread, or a long put spread, you buy a long put with a higher strike price and a short put with a lower strike price. You do this, because you expect the underlying to drop, but not significantly. Consider the following spread:

Long July Russell 2000 1395 Put @ 42

Short July Russell 2000 1380 Put @ 33

This is a debit spread because you have spent more in premiums to acquire the position (42 index points) than you received (33). The premium you pay totals $450 (9 index points x $50 multiplier). This is your maximum loss.