Strategies · Library · Options
§2.9Trend
Bear put spread
Buy a put near the current price and sell a lower-strike put, same expiry. Costs less than a plain put, profits as the stock falls to the lower strike, then flattens.
- Asset class
- Options
- Held for
- To expiry
- Data
- ARCANE has part of the data
- Symphony
- Cannot be built as a symphony
The rule
- Signal
- Moderately bearish: expects a decline but probably not much below the lower strike.
- Entry and exit
- Buy a put at or near the money; sell a put at a lower strike; same expiry. Close at expiry or when most of the maximum gain is reached.
- Sizing
- 1:1 (one long higher-strike put, one short lower-strike put)
How it fails
- Maximum loss is the net debit, reached above the higher strike
- Gain capped at the strike gap minus the debit
- Breakeven is the long strike less the debit
- Short put can be assigned; time decay hurts early, helps near expiry
Data it needs
- options chain with strikes and premiums
- implied volatility by strike and expiry
- underlying daily price
ARCANE has the underlying daily close but no options chains, strikes or implied volatilities
How ARCANE uses it
Matches a Call that a price falls to a stated level by a date, with the lower strike as the target. Paper only.
A bearish capped payoff needs puts; the builder is long-only.
Filed under the trend card
Hold each market in the direction of its own return over the past year, and size every position to the same expected volatility.
A paper plan from this card holds 21 to 252 days, stops at 2× the expected move and uses at most 100% of your risk budget. The card
Source: Kakushadze and Serur (2018), 151 Trading Strategies, §2.9, p. 21 of the SSRN version. Described in our words. Trend is ARCANE’s filing, not the book’s.