Bear spread(redirected from Bear Spreads)
2. In futures, the sale of a contract expiring in a near month and the purchase of a contract in the same or a similar underlying asset expiring in a later month. In this situation, the investor makes a profit if the price of the underlying declines.
A bear spread is an options strategy that you use when you anticipate a decline in the price of the underlying instrument, such as a stock or an index.
As in any spread, you purchase one option and write another on the same underlying item. Both options are identical except for one element, such as the strike price or the expiration date.
For example, with a vertical bear call spread, you buy a call with a higher strike price and sell a call with a lower strike price. With a vertical bear put, you buy a put at a higher price and sell a put at a lower price.
In either case, if you're right about the behavior of the underlying instrument -- for example, if a stock whose price you expect to fall does lose value -- you could have a net profit. If you're wrong, you could have a net loss cushioned by the income from the sale of one of the legs of the spread.