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SPX Bear Put Spreads

 

SPX Index is between 1400 and 1395 at expiration
 

Buy 1 SPX 1400/1395 Put Spread at $2.35 Debit


With the SPX exercise settlement value between the two strike prices of $1400 and $1395 at expiration, the short SPX 1395 put would expire out-of-the-money and with no value, but the long 1400 put would be in-the-money and worth its cash settlement amount. With SPX below the break-even point of 1397.65, the settlement amount received for the 1400 put would exceed the total debit initially paid for the spread and the investor would see a partial profit.

As an example, the SPX exercise settlement value is 1396. The put’s cash settlement amount would be:

1400 (put strike price) – 1396 (settlement value) = $4 x $100 = $400

The investor’s partial profit would be:

  $400    cash settlement amount received at put’s exercise
- $235    total debit initially paid for spread
  $165    profit

On the other hand, if SPX settles above the break-even point (but below the higher 1400 strike) the cash settlement amount will be less than the debit paid for the spread and a partial loss would be realized.

For instance, say the SPX exercise settlement value is 1399. The put’s cash settlement amount would be:

1400 (put strike price) – 1399 (settlement value) = $1 x $100 = $100

The investor’s partial loss would be:

  $235    total debit initially paid for spread
- $100   cash settlement amount received at call’s exercise
  $135    loss

 
 

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