Best bear option strategies

Important legal information about the email you will be sending. By using this service, you agree to input your real email address and only send it to people you know.

It is a violation of law in some jurisdictions to falsely identify yourself in an email. All information you provide will be used by Fidelity solely for the purpose of sending the email on your behalf. The subject line of the email you send will be "Fidelity. When the stock market is falling, some active investors may want to try to profit from the drop.

But for some situations, simply shorting a stock or buying a put may seem too risky. In that case, the options strategy called the bear put spread may fit the bill. To use this strategy, you buy one put option while simultaneously selling another, which can potentially give you profit, but with reduced risk and less capital.

Although more complex than simply buying a put, the bear put spread can help to minimize risk. Because you are hedging your position by buying one put option and selling another put option, which can reduce losses but can also limit your potential profits. And, this strategy involves less capital than simply buying a put. Your goal is to sell the combined position at a price that exceeds the overall purchase price, and thus make a profit. One advantage of the bear put spread is that you know your maximum profit or loss in advance.

In fact, the maximum risk for this trade is the initial cost of the spread. Therefore, you have defined your risk in advance. Normally, you will use the bear put spread if you are moderately bearish on a stock or other security.

Your goal is for the underlying stock to drop low enough so that both options in the spread are in the money when expiration arrives, that is, the stock is below the strike price of both puts.

You want the stock to fall far enough to earn more than the cost of the spread. Here is one example of how it works:. Buy a put below the market price: You will make money after commissions if the market price of the stock falls below your breakeven price for the strategy.

Sell a put at an even lower price: You keep the proceeds of the sale—offsetting some of the cost of the put and taking some risk off the table. You also give up any profits beyond the lower strike price. The stock price falls as you anticipated and both puts are in the money at expiration.

Here are some general guidelines. Before placing a spread with Fidelity, you must fill out an options agreement and be approved for Level 3 options trading. Contact your Fidelity representative if you have questions. The underlying stock, XYZ, falls below the 30 strike price before the expiration date. Before expiration, you can close both legs of the trade. The underlying stock, XYZ, remains above the 30 strike price before or near the expiration date.

To avoid complications, you may want to close both legs of a losing spread before the expiration date, especially if you no longer believe the stock will perform as anticipated. Before expiration, close both legs of the trade. If this occurs, you may want to exercise the long put but you may want to call Fidelity for assistance. Trading spreads can involve a number of unforeseen events that can dramatically influence your options trades.

It can help if you learn about time decay and implied volatility , and how they can affect your trade decisions.

Get a weekly subscription of our experts' current thinking on the financial markets, investing trends, and personal finance. Please enter a valid name.

First and Last name are required. Full name should not exceed 75 characters. Enter a valid email address. Email address must be 5 characters at minimum. Email address can not exceed characters.

Please enter a valid email address. Thank you for subscribing.

Option Strategies for Bull, Bear and Sideway Markets

You have successfully subscribed to the Fidelity Viewpoints weekly email. You should begin receiving the email in 7—10 business days.

We were unable to process your request. Please Click Here to go to Viewpoints signup page. Use this simple yet powerful technical indicator to unlock a wealth of information within your charts.

Get buy or sell signals. Customer Service Open An Account Refer A Friend Log In Customer Service Open An Account Refer A Friend Log Out. Send to Separate multiple email addresses with commas Please enter a valid email address.

Your email address Please enter a valid email address. The bear put spread How you may profit from a falling stock price, while potentially limiting risk.

How do you use put options to profit from a bear market? | Investopedia

Options trading entails significant risk and is not appropriate for all investors. Certain complex options strategies carry additional risk. Prior to trading options, you must receive from Fidelity Investments a copy of " Characteristics and Risks of Standardized Options " by clicking on the hyperlink text, and call FIDELITY to be approved for options trading.

Supporting documentation for any claims, if appropriate, will be furnished upon request. There are additional costs associated with option strategies that call for multiple purchases and sales of options, such as spreads, straddles, and collars, as compared to a single option trade.

Bearish Options Trading Strategies - Trading in a Bear Market

Views and opinions expressed may not reflect those of Fidelity Investments. These comments should not be viewed as a recommendation for or against any particular security or trading strategy. Views and opinions are subject to change at any time based on market and other conditions. Fidelity Brokerage Services LLC, Member NYSE, SIPC, Salem St. Please enter a valid e-mail address.

Important legal information about the e-mail you will be sending. By using this service, you agree to input your real e-mail address and only send it to people you know. It is a violation of law in some jurisdictions to falsely identify yourself in an e-mail. All information you provide will be used by Fidelity solely for the purpose of sending the e-mail on your behalf.

The subject line of the e-mail you send will be "Fidelity. Your e-mail has been sent. Signup for Fidelity Viewpoints Get a weekly subscription of our experts' current thinking on the financial markets, investing trends, and personal finance. Related Articles Chart tips If you like to use charts, consider the time frame, the type of chart, and a benchmark. Moving averages Use this simple yet powerful technical indicator to unlock a wealth of information within your charts.

Get buy or sell signals This indicator can generate buy and sell signals. Stay Connected Locate an Investor Center by ZIP Code. Please enter a valid ZIP code. Careers News Releases About Fidelity International. Copyright FMR LLC. Terms of Use Privacy Security Site Map Accessibility This is for persons in the U.