Bear Put Spread
Prerequisite strategies: the long put and long call traded with real money, plus one cash-secured put assignment, so a short leg is something you have lived with. Clear the Level 2 gate first. Next: the bear call spread, the credit expression of this same view.
Why this structure exists
Everything in Level 1 was safe because of what stood behind it: cash, shares, or a premium paid in full. A vertical spread is the first structure whose worst case is fixed by how it is built. Buy the 520 put, sell the 480 put, and the most you can lose is what the two legs cost between them — the net debit — whatever the underlying does. Nothing is set aside, nothing pledged: width minus debit is the profit, the debit is the loss. That is the organising idea of the whole tier, and this is the cleanest place to meet it.
The problem it solves is the one every long put owner has: right on direction, still losing, because you paid for a collapse you never expected. Selling a put below yours refunds the part of the premium you were never going to use — 4.00p on a 16.75p put below, 23.9% off the cost and 3.72p of breakeven bought back with it.
The nearest simpler alternative is the outright long put. Why not just do that? It costs £168.90 against this spread's £130.30 and needs Barclays under 502.97p rather than 506.69p — but nothing below 480p is capped. Take the spread when your view has a floor in it: a support level, a valuation, a target. Take the put when it genuinely does not.
Construction
| Leg | Buy / Sell | Quantity | Strike rule | Expiry rule | Target delta | Price |
|---|---|---|---|---|---|---|
| Put (upper) | BUY (debit) | 1 contract = 1,000 shares (ICE UK); 100 (US) | At the money or one strike ITM | 45–90 days; never the front weekly | −0.45 to −0.55 | 16.75p = £167.50 |
| Put (lower) | SELL (credit) | 1 contract, same expiry | Listed strike inside the 1 SD expected move | Identical expiry — never a different one | −0.15 to −0.25 | 4.00p = £40.00 |
| NET | Net debit | 1 spread, 40p wide | 520 / 480, Barclays 520p | 16 October 2026, 60 days | −0.30 (−£2.98 a penny) | 12.75p = £127.50 |
Four hard constraints, checkable on the chain before the order goes in:
Formulas: max loss = net debit × contract size + opening commission. Max profit = (width − net debit) × contract size − round-trip commission. Breakeven = upper strike − net debit − round-trip commission per share = 520p − 12.75p − 0.56p = 506.69p, a 2.56% fall.
Two flat ends and a ramp between them: that is what "defined by construction" looks like. The dashed line is the position today — below the breakeven it sits under the payoff, the fee you pay for the right to leave early; above it, it sits over, because the long put still holds time value. At 600p today's mark is −£121.48 against an expiry loss of £130.30, and that residue is what a stop harvests.
Entry criteria
| Gate | Rule | Reason |
|---|---|---|
| IV rank / IV percentile | IVR below 30 to buy this spread; above 30, sell the bear call spread instead. Below 20 better still | You are long £3.33 of vega a point. A debit vertical is a purchase of extrinsic value, and a rank is what tells you whether extrinsic is cheap for this underlying |
| Days to expiry | 45–90, closed at 21 | Under 45, theta on the long leg outruns most theses; over 90 you buy time the target does not need |
| Strike selection | Long leg −0.45 to −0.55 delta; short leg −0.15 to −0.25 and inside 1 SD | 480p here is a 15-delta strike at −0.86 SD |
| Debit versus width | Net debit ≤ 40% of the width; reward-to-risk ≥ 1.5 : 1 | 31.9% and 2.05 : 1 here. The one number that says whether the chain is offering a sensible price |
| Liquidity | Bid-ask ≤ 10% of the spread mid; open interest ≥ 100 on both legs | A 10% spread costs £25.50 round trip, 19.6% of your maximum loss, before the market moves. ICE UK series are routinely worse |
| Underlying | A FTSE 100 name you would accept being short 1,000 shares of | ICE delivery is physical and the short leg can be assigned early |
| Event calendar | No results, ex-dividend date or index review inside the window | An event is a volatility trade, and this is the wrong instrument for one |
Do not enter if: IV rank is above 30 — the view may be right but the structure is wrong; the net debit exceeds 40% of the width; the short strike sits beyond 1 SD; the bid-ask is wider than 10% of mid on either leg; results fall inside the window; or the maximum loss exceeds 2% of the account.
Credit or debit: the same view, two structures
A bear put spread and a bear call spread are one opinion in two costumes: both defined risk, both 40p wide, both wanting Barclays lower. Implied volatility ranked against its own last twelve months decides which you may place. Modelled on a 12-month range of 18% to 43%:
| Structure and IV rank | Debit / credit | Max loss | Max profit | Reward : risk | Breakeven | P(profit) |
|---|---|---|---|---|---|---|
| PUT spread 520/480, IVR 16 | Debit £127.50 | £130.30 | £266.90 | 2.05 : 1 | 506.69p | 37.5% |
| PUT spread 520/480, IVR 48 | Debit £150.00 | £152.80 | £244.40 | 1.60 : 1 | 504.44p | 40.4% |
| PUT spread 520/480, IVR 80 | Debit £165.00 | £167.80 | £229.40 | 1.37 : 1 | 502.94p | 42.8% |
| CALL spread 520/560, IVR 16 | Credit £140.00 | £265.60 | £134.40 | 0.51 : 1 | 533.44p | 60.1% |
| CALL spread 520/560, IVR 80 | Credit £155.00 | £250.60 | £149.40 | 0.60 : 1 | 534.94p | 58.6% |
Read the first and last rows together. As volatility rises the debit structure worsens on every measure — debit up from 31.9% of the width to 41.3%, reward-to-risk down by a third — while the credit structure improves, collecting £15 more for £15 less risk. The gate is not a claim that either has the higher expected value; in a risk-neutral model neither has any. It is a claim about which side of the vega you want. At IVR 16 you buy £3.33 a point of something cheap; at IVR 80 you would buy it dear, and the call spread's −£1.83 a point is where you belong.
Greeks at entry and how they evolve
| Greek (per contract) | Entry, 60 DTE, 520p | 30 DTE, unchanged | 7 DTE, unchanged | +1 SD (566p, IV 20%) | −1 SD (474p, IV 26%) |
|---|---|---|---|---|---|
| Delta (£ per penny) | −2.98 | −3.79 | −4.80 | −0.57 | −3.42 |
| Gamma (£ per penny, per penny) | +0.034 | +0.072 | +0.244 | +0.035 | −0.055 |
| Theta (£ per day) | −0.43 | −1.07 | −4.10 | −0.57 | +1.35 |
| Vega (£ per vol point) | +3.33 | +3.54 | +2.79 | +1.82 | −2.64 |
| Position mark | £128.77 | £108.57 | £61.01 | £8.24 | £298.92 |
Black–Scholes at 22% implied volatility unless stated, 4% rates, no dividend inside the window, per 1,000-share ICE contract; the ±1 SD columns are at 30 DTE with volatility stepped for equity skew. The £128.77 entry mark is the raw model value; the £127.50 debit below is the same spread rounded to the 0.25p ICE tick.
Vega decides whether this trade wins; gamma decides what the ending costs. Read down the −1 SD column: once Barclays is through the short strike the position has inverted — gamma negative, theta positive, vega negative. A bear put spread that has worked is no longer a long-premium directional trade but a short-premium one collecting £1.35 a day and hoping nothing bounces. That is the character flip, and it is why the profit target exists. The second flip comes near expiry: on the breakeven, spread delta runs −£3.34 a penny at 60 days, −£5.27 at 21 days and −£9.41 at 2 days, so a 5p tick — under 1% on Barclays — is then worth £47 on a position whose whole maximum loss is £130.30. Holding to expiry is not patience; it is a coin-flip at triple the stake.
Barclays modelled at 520p, and you think the autumn takes it to 480p
Barclays ordinary shares traded around 520p in mid-August 2026. On ICE Futures Europe one Barclays option is rights over 1,000 shares, quoted in pence per share, American style and physically delivered, tick 0.25p (£2.50) — so one penny of premium is £10 a contract. The October series stops trading 16:30 London on Friday 16 October 2026, 60 days away. Implied volatility is 22% against a 12-month range of 18% to 43%, so IV rank is 16: the gate says debit.
The trade: buy 1 × Barclays October 2026 520 put at 16.75p, sell 1 × October 2026 480 put at 4.00p, as one spread order.
Branch A — the target fires. Barclays 485p on 16 September, 30 days left.
Branch B — the stop fires. Barclays 532p on 16 September, volatility down to 20%.
Branch C — the time stop fires. Barclays 500p on Friday 25 September, 21 days left.
Branch D — the maximum loss. Barclays 520p or higher on 16 October. Both puts lapse worthless, so there is nothing to close and the loss is the £130.30 written down at entry. The legs then part company for tax: the long 520 put's £168.90 is an allowable loss for 2026/27 under TCGA 1992 s.144(4), while the £40.00 taken for the 480 put was a chargeable gain the day it was granted.
Branch E — early assignment on the short 480 put, Barclays 455p in late September. The Level 2 trap: assignment arrives when the trade is winning. At 455p with seven days left the European model prices the 480 put at 24.873p against 25.00p of intrinsic — below parity, exactly when an American put gets exercised.
On the FTSE 100 index instead: cash-settled and European, so no assignment and no SDRT — but one contract is £10 per index point on about £107,500 of notional at 10,750, and a 10,750 / 10,500 spread costs £1,085 against this trade's £127.50. At 16% volatility 250 points is 0.36 standard deviations, so the short strike sits far inside the expected move and reward-to-risk falls to 1.29 : 1. The index is the right underlying for a range trade and the wrong one for a small directional spread.
On a US underlying the contract is 100 shares, and the gain is still computed in sterling on each disposal date. Pay $340 at GBP/USD 1.3552 and the cost is £250.89; close for $700 at 1.4000 and the proceeds are £500.00. The dollar gain is 105.9%; the chargeable gain is £249.11, or 99.3%. Sterling strength took £16.53, and the conversion spread lands on top, twice.
This is a single, hand-picked, favourable scenario. It is not a typical or expected outcome. Every premium is modelled from Black–Scholes at the stated inputs rather than taken from a live chain, and 520p is a round illustrative figure. Real ICE fills are wider, and the modelled 37.5% probability of profit means most of these lose. Past performance, including any illustrative example shown here, is not a reliable indicator of future results.
Management and adjustment
| Trigger | Diagnosis | Action | Do NOT do this |
|---|---|---|---|
| Short 480 strike tested | The trade is working. In a debit vertical the tested strike is the winning one | Take the target, or roll down: close the 520/480 and open a 480/440. At 470p with 30 days left that realises £184.40 and redeploys £152.50, keeping £29.10 off the table | Buy the short leg back alone. That turns a 40p spread into a naked long put at the worst price and doubles your remaining risk |
| Price above the long 520 strike and rising | The thesis has failed and there is no strike to defend | CLOSE at the stop | Roll the long strike up — a fresh debit to re-enter a trade you were just proved wrong on |
| IV expands after entry | A vega gift of +£3.33 a point, not yours until taken | Take the profit target even if price has barely moved | Hold out for the directional move too. Volatility mean-reverts and takes the gift back |
| IV collapses after entry | You bought extrinsic and it evaporated — the failure the IV gate prevents | Re-run the gate at today's numbers; if you would not open it now, close it now | Add a contract to lower the average debit. Averaging into a trade your own gate rejects is not a plan |
| Short put deep ITM, extrinsic below the interest carry | Assignment imminent — £3.68 of carry on the 480 strike over seven days | Close the whole spread on the screen; it saves £24.00 of SDRT and the £4,824 overnight balance | Wait and see. Notices arrive overnight, after the market has moved |
| Assigned on the short leg overnight | Long 1,000 shares plus a 520 put: net delta has flipped positive | Resolve it the same morning — exercise the long put to deliver, or sell the shares and sell the put | Keep the shares because they look cheap. That turns a £130 defined-risk trade into a £4,800 equity position by accident |
| 21 days to expiry reached | Delta at the breakeven is on its way from −£5.27 to −£9.41 a penny | Close regardless of P&L, or roll to the next monthly as a new trade with a new written maximum loss | Carry it into expiry week for the last few pounds of intrinsic |
ROLL WHEN the move has already happened and you are rolling down to bank cash — the only roll on this page that improves your position, and the new 480/440 spread still has its own £155.30 maximum loss to put through the 2% rule. ROLL OUT IN TIME only for a new, dated catalyst, treated as a new trade: with Barclays unchanged at 30 DTE, closing October at £107.50 and opening December at £145.00 is a net debit of £37.50 plus £5.60 of commission, lifting capital at risk from £130.30 to £173.40, up 33.1% on a thesis that has already failed once. DO NOT ROLL to rescue a loser, and never roll one leg alone — a vertical rolled a leg at a time stops being a vertical, and risk defined by construction quietly stops being defined. And the rule that separates this tier from the last: when price is above your long strike and moving away, when the stop has fired, or when volatility has collapsed to a level your own entry gate would reject, the correct action is to close. A debit vertical has no defensive adjustment. Everything that looks like one is a second trade financed by refusing to book the first.
Exit rules
If all four are silent, do nothing. At −£0.43 a day that is a cheap position to hold.
Margin and broker reality
A cash account will not do, and this is the commonest reason a UK reader's first spread order is rejected. A vertical contains a short option leg, so it needs a margin account with spread permission. The Cboe strategy-based schedule allows only a narrow cash-account exception, for limited-risk spreads composed entirely of European style, cash settled index options all expiring at the same time. An ICE UK single-stock option is American style and physically delivered, so the Barclays spread does not qualify; the FTSE 100 version would in principle, but your broker's own permissions still govern.
The requirement itself is mild. Cboe's rule is that the requirement for debit (or long) spreads is to pay for the net debit in full, so initial and maintenance are both the £127.50 debit plus £2.80 of commission — £130.30, with no buying-power reduction beyond it and no maintenance call as the price moves. Defined risk means the margin question is answered before you click.
Two costs the schedule does not show. Assignment: if the short 480 put is exercised overnight, £4,824 of stock and stamp duty lands in an account whose position was £130 — a margin account carries that for a day at overnight rates, a cash account cannot. The ICE spread: a bid-ask of 10% of mid costs £25.50 round trip, 19.6% of your maximum loss, and UK single-stock series are routinely worse. On access, Hargreaves Lansdown, AJ Bell and Trading 212 offer no options at all, so this is an Interactive Brokers or Saxo trade; portfolio margin and IBKR's USD 110,000 gate are a Level 3 problem, not this one.
IV rank < 30 AND net debit ≤ 40% of width AND reward:risk ≥ 1.5 : 1. Fail one and the trade is not a bear put spread, it is a bear call spread.What to trade instead
Simpler, from the tier below: the long put alone — £168.90 rather than £130.30, breaking even at 502.97p rather than 506.69p, but with nothing below 480p capped. If your view is a crash rather than a drift, the spread is the wrong instrument.
Same view, other side of the volatility gate: the bear call spread. Same direction, same width, credit instead of debit, 60.1% probability of profit against 37.5%, and a 0.51 : 1 payoff against 2.05 : 1. IV rank picks, not preference.
More precise, from the tier above: a broken wing butterfly to the downside expresses a target rather than a direction and can often be built for a credit — but the wide wing is a skew trade, and you need to know why it is priced as it is before you own it.
Portfolio fit
One contract carries net delta of −£2.98 a penny: 298 share-equivalents short, £1,549.60 of short Barclays exposure, about −£15.50 per 1% Barclays moves. It uses £130.30 of buying power, 0.87% of a £15,000 account, and contributes +£3.33 of vega a volatility point. That last figure is what gets a Level 2 book into trouble: every debit vertical is long vega, and they all lose together on the same quiet week. A £25,000 account running three contracts of this and seven other defined-risk positions has £3,127.20 at risk, 12.5% of capital — a reasonable ceiling. Sizing: 2% maximum in any one position, 10–15% at risk across the book, no more than three long-vega debit structures at once. If net delta across every position is more negative than 5% of the account, you do not have eight trades. You have one bearish bet in eight tickets.
Risk statement
Listed options are complex instruments and most retail directional option positions lose money. This is educational material about mechanics, margin and UK tax treatment, not a recommendation to trade Barclays or anything else, and it takes no account of your circumstances. Every price here is modelled rather than quoted, and the modelled probability of profit on the headline trade is 37.5%. If your trading becomes frequent enough to put the investor-versus-trader boundary in question, that is one for a qualified adviser.