Long Put Spread
A long put spread buys a put and sells a lower one to make a cheaper, defined-risk bearish bet. Learn how it lowers cost by capping the downside profit.
A long put spread buys a put and sells a lower-strike put in the same expiration, making a bearish bet for less cost than a plain put. It is another name for the bear put spread, and it is a common defined-risk way to bet a stock falls.
You give up some of the downside profit of a single long put in exchange for a cheaper entry and a known maximum loss. Let me show you the trade-off.
Cheaper Downside With a Floor
A plain long put profits all the way down but costs the full premium. A long put spread trims that cost by selling a lower put against the one you buy. The premium you collect offsets part of the price, making the whole trade cheaper.
The cost is a floor on your profit. By selling that lower put, you cap your gains at its strike, so you are not paid for the stock falling below it. A long put spread is a bet that a stock drops to a target, not that it collapses to zero. Cheaper entry, defined risk, capped reward.
Watch It Work
Apple is at $200 and you expect a drop toward $190, but not a crash. You build a long put spread:
- Buy the $200 put for $6 a share
- Sell the $190 put for $2 a share
- Net cost: $4 a share, or $400, your maximum loss
Your spread is $10 wide, so your max profit is the width minus the cost: $10 minus $4, or $600. Break-even is $196.
Apple falls to $190 or lower. Both strikes are in play and the spread reaches its full $10 value. After the $4 cost you keep the max $600. Anything below $190 adds nothing, since the sold put caps you there.
Apple sits at $200 or above. Both puts expire worthless and you lose the $400 you paid, no more. The defined risk held.
Apple lands at $194. You profit, just not the maximum. You are past break-even but above the cap.
When to Use It
A long put spread fits a moderately bearish view, where you expect a decline to a target rather than a total collapse.
The appeal is cost and definition. It is cheaper than a lone put, and both your max profit and max loss are known up front, which makes it easier to size and less painful if you are wrong.
The trade-off is the floor. If the stock craters far below your sold strike, you miss the gains down there, where a plain long put would have kept paying. So choose a long put spread when you have a specific downside target and want to pay less to bet on it. The bullish mirror is the long call spread.
- A long put spread buys a put and sells a lower one.
- It is cheaper than a plain put, with defined risk.
- Profit is capped at the sold strike; loss is the net premium.
- It suits a moderately bearish view with a target.
Pop Quiz
Three quick questions to see what stuck. Pick an answer and the explanation shows up right away.
How does a long put spread lower its cost versus a plain put?
Selling the lower put brings in premium that offsets the put you buy, cutting the net cost.
What do you give up for the lower cost?
The sold put caps your profit at its strike, so gains below it are forfeited.
What view does a long put spread suit?
With a capped bottom, it fits a decline to a specific target rather than a crash all the way down.
Bottom Line
A long put spread is the budget bearish trade. Buy a put, sell a lower one, and you pay less for a defined-risk bet that a stock falls to a target. Both your best and worst cases are known from the start.
The price of that discount is a floor on your gains. When you expect a measured decline rather than a collapse, capping the downside profit to lower the cost is a smart trade. Reach for it when you have a target in mind.
Keep going: it is the same trade as the bear put spread, the uncapped version is the long put, and the bullish mirror is the long call spread.