A Bear Put Debit Spread is an options trading strategy implemented in crypto institutional options trading, designed to profit from a moderate decline in the underlying cryptocurrency’s price. It is characterized by a net debit at initiation, signifying a defined maximum risk and a defined maximum profit potential.
Mechanism
This strategy involves simultaneously buying an out-of-the-money (OTM) put option and selling a further out-of-the-money (FOTM) put option on the same underlying crypto asset, with the same expiration date. The higher premium paid for the purchased put is partially offset by the premium received from the sold put, resulting in a net debit. The short put limits potential profit while also capping maximum loss.
Methodology
The strategic rationale for deploying a Bear Put Debit Spread centers on achieving a cost-effective bearish position with controlled risk. By selling a lower strike put, the trader reduces the initial cost of the bearish stance, accepting a capped profit in exchange for a limited loss if the crypto asset moves against the expected downward trajectory.
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