Bear Put Spread
A bear put spread buys a put and sells a lower-strike put on the same share and expiry, for a net debit. That debit is the most the position can lose. Its best case is the 40p gap between the strikes minus that debit, and any fall below the lower strike belongs to the buyer of that put. The structure fits a view that a share will fall to a level rather than collapse. This page's example uses Barclays' October 520 and 480 puts on one 1,000-share ICE contract: £135.30 at risk for at most £261.90, with a breakeven of 506.75p.
Barclays stands in as the model share: nothing here is a view on Barclays, and the dates are fixed and in the past. The page assumes the long put page and the Level 2 defined-risk rules have been read. All prices are modelled: modelled example: inputs and method.
Barclays October 520 and 480 puts, bought as one spread
The sold 480 put returns £40.00, 23.2% of what the 520 put cost, and moves the breakeven from 502.75p (the outright put) up to 506.75p, a fall of 2.5%. In exchange, a fall below 480p earns the spread nothing more.
Contract and access. The standard Barclays option on ICE Futures Europe covers 1,000 shares, is quoted in pence with a 0.25p tick (£2.50 a contract) and is delivered physically. Barclays also has a mini contract over 100 shares (code 8BL), which scales every figure here by a tenth before its own commission; it is listed on ICE, and whether a broker offers it and quotes a two-way price is the thing to check (contract sizes).
What it pays on Friday 16 October
The Barclays 520/480 put spread per contract, costs left out: the expiry line, mid-September and the day it was opened. An instant rise to 560p on the entry date marks it at −£90.46, less than the full loss, because the 520 put still has time value then.
After-commission figures count £2.80 to open and £1.40 for each put still in the money at expiry; a put that finishes at or out of the money lapses with no closing trade. Breakeven after the three commissions that apply there is 506.33p. In the model (risk-neutral, lognormal, IV 22%), Barclays finishes below 506.75p in 37.7% of outcomes, below 480p, where the whole £261.90 is paid, in 17.8%, and at or above 520p, the full loss, in 51.0%.
How these numbers are calculated
Debit = 17.25p − 4.00p = 13.25p; on 1,000 shares that is £132.50. Maximum loss = debit plus the £2.80 opening commission = £135.30. Maximum profit = (40p − debit) × 1,000 less four commissions = £261.90. Breakeven = 520p − debit = 506.75p. Each put is valued on a 200/201-step binomial tree with early exercise allowed; the spread's value is the long put's value less the short put's. Model probabilities are N(−d2) at IV 22% and 3.75%. The ±1 SD range runs from 475.6p to 568.5p: 520p multiplied by e raised to ±0.22 times the square root of 60/365.
Debit or credit: the same fall at three levels of volatility
The same 40p bearish view can be bought as this put spread or sold as a bear call spread (sell the 520 call, buy the 560 call). The two tables price both at the example's 22% and at two higher volatilities on the assumed 18% to 43% range. They illustrate what volatility does to each shape; IV rank on its own says nothing about which will make money (IV rank and percentile; the library's IV bands).
Higher volatility makes the put spread dearer, from 33.1% of its width at 22% to 41.3% at 38%, so its reward-to-risk falls to 1.37 : 1, while the model probability of profit rises to 43.2%. The call spread moves the other way, taking in £155.00 instead of £137.50. Both spreads' exposure to volatility shrinks as it rises: the put spread's vega falls from +£3.21 to +£1.49 a point and the call spread's from −£1.85 to −£0.48, because at a higher IV both strikes sit closer, in standard deviations, to the share price. At the model's own prices neither spread has an edge before costs; what differs is the shape. The debit spread at 22% has a 37.7% model probability and pays 1.94 : 1; the credit spread has 60.6% and pays 0.51 : 1.
Five Barclays put spreads priced side by side
Moving the sold strike lower buys more room: the 520/460 spread costs £157.50 and pays up to £436.90, but finishes below its breakeven in only 35.6% of model outcomes, and its gain arrives only if Barclays keeps falling. Moving both strikes down makes the trade cheap and remote: the 500/460 costs £75.00 for a 4.11 : 1 payoff that needs a fall past 492.50p to earn anything. Moving both up makes it expensive and close: the 540/500 costs £197.50, pays less than it risks (0.98 : 1) and is profitable in 49.2% of outcomes, because 20p of its price is already intrinsic value. The last column prices each spread after a 30p fall by mid-September, when the example would show +£109.40. Strike intervals on ICE are set by the exchange, so the live chain decides which of these exist.
Five ways to hold a fall in Barclays, after tax
A UK reader can take the same bearish view through several products, and tax changes the arithmetic as much as the price does. The table holds the view constant: Barclays at 470p on 16 October (the view right) or at 540p (the view wrong), a taxpayer paying 24% who has used the £3,000 exempt amount on other gains. Spread-bet and CFD versions of the same put spread are shown at the same prices, before the provider's own dealing spread and any financing, which is where their charges sit; the tax page applies the same comparison to a FTSE put.
The spread bet keeps the most when the view is right, and costs the most when it is wrong, because a loss on it cannot be set against gains elsewhere. The listed and CFD versions are close before costs but differ in timing: the listed spread's short put is taxed at its grant date, while a CFD position's result is dated when it closes. Spread bets and CFDs are restricted speculative investments, sold to retail clients with minimum margins, a close-out rule and negative-balance protection under FCA rules (COBS 22.5); listed options sit outside those rules. The three-way comparison sets out the costs and margin.
The inverse product row sizes the stake at the spread's starting exposure, 305 share-equivalents at 520p. It resets its exposure every day, so over weeks it does not return exactly minus the share's move: if Barclays fell 10% one day and rose 11.1% the next, back to 520p, £977.78 would be left of £1,000 invested, £22.22 lost with the share unchanged. The loss is capped at the amount invested.
Greeks: long volatility until Barclays passes about 493p
At entry the spread is a small long-volatility position, gaining £3.21 for each point IV rises and paying £0.46 for each day that passes, with −305 share-equivalents of delta (−£3.05 for each penny Barclays moves). Its gamma changes sign at about 493p. Above that, time costs the holder money and a rise in IV helps; below it, after an instant fall to 475.6p, theta turns to +£0.61 a day, vega to −£3.18 and gamma to −26.0: a working bear put spread is short premium and gains from quiet days. With Barclays unchanged the cost of waiting grows, from −£0.46 a day at entry to −£4.35 a day with a week left, when delta at the money has reached −483 share-equivalents (position Greeks).
The worked plan on Barclays
The plan applies the library's teaching conventions, framed as choices rather than rules: close at 50% of the maximum profit (£130.95, when the spread is worth 26.90p), cut the position once it has lost half the debit (£66.25; the spread marked at 7.19p), and close with 21 days to go, on Friday 25 September. Each ending shows the convention first and then what holding would have given.
Barclays at 485p on Wednesday 16 September: the target order fills
A resting order to sell the spread at 27.00p, the first tick at or above the 26.90p target, fills as Barclays trades at 485p with 30 days left.
Barclays at 532p on Wednesday 16 September, IV down to 20%: the stop
This ending departs from the model sheet's flat 22% on purpose: implied volatility falls two points as the share rises, which is what a long-vega position meets on a quiet rally.
Barclays at 500p on Friday 25 September: the 21-day close
With 21 days left the spread is already worth its intrinsic value: the short 480 put's time value (3.04p on the model, all of its price) slightly exceeds the long put's 2.93p. Three more weeks could add £1.40; they could also turn the £61.90 gain into the full £135.30 loss.
Barclays at or above 520p on 16 October: the whole debit
Both puts expire worthless and nothing is traded. The loss is the £135.30 fixed at entry, made of a £38.60 gain on the 480 put's grant (17 August) and a £173.90 loss when the 520 put lapses (16 October).
Barclays at 448p on Friday 9 October: the 480 put is assigned early
With a week left the 480 put is worth only its intrinsic value on the model (32.00p; the European value is 31.72p), so a holder who exercises gives up nothing and receives 480p a week early (next section). The writer's notice arrives on Monday 12 October.
Between Friday's exercise and Monday's instructions the account holds a 72.00p put against shares it has been made to buy, so the position stays hedged; it also carries £4,800 of stock for a few days on a £135.30 trade. The mechanics of one leg being assigned are on the assignment page.
When the 480 put is exercised early
An American put is exercised early for the interest, not for a dividend. Exercising the 480 put a week before expiry pays its holder 480p seven days sooner; at 3.75% that is worth £3.45 a contract. Once the put is so deep in the money that the rest of its value is smaller than that, holding it has nothing left to offer.
Below about 450p the tree values the put at exactly its intrinsic value, and a European put, which cannot be exercised, is worth less than intrinsic. That gap is the early-exercise value. Dividends push the other way: a share drops by its dividend on the ex-date, which adds to a put's intrinsic value, so put holders tend to wait until an ex-date has passed (early put assignment). Barclays has no ex-date in this window. Had its 5.9p half-year dividend gone ex 30 days in, the same spread would have cost 15.00p on the model instead of 13.15p, £18.49 more a contract: the expected drop is in the price on the day the spread is bought.
Rolling down, rolling out, or closing
A roll is two trades on one ticket, and each is taxed on its own; the rolling page works through closing against rolling and the tax of a roll.
UK tax: the short put's loss can land a year early
Closed or lapsed, the spread is two computations: the 480 put's grant, with any buy-back cost added to it under TCGA 1992 s148 and dated on 17 August, and the 520 put's sale, or its lapse under s144(4) (CG55536, CG55415). Assigned and exercised, it is one share computation. Figures assume the £3,000 exempt amount is used on other gains (counting computations).
Across 5 April the order flips. Put the target ending on March-to-May dates: the 480 grant, bought back at a loss, is dated at the grant, so its −£55.30 sits in 2026/27 and can reduce that year's other gains (worth £9.95 or £13.27); the 520 put's +£187.20 is taxed in 2027/28 (£33.70 or £44.93). A winning bear put spread can put its loss in the earlier year and its gain in the later one (across 5 April). If the reader already holds Barclays shares, the 1,000 delivered on assignment join the same holding, and the sale through the 520 put is matched under the share identification rules, not simply against 480p (assignment and the share computation). Listed options cannot be held in an ISA (wrappers), and the SA108 box numbers have their own page.
Costs, the account, and the index alternative
On the FTSE 100 instead. A 10,750/10,500 index put spread over the same 60 days costs 90 points, £900.00 at £10 a point (fills 236.0 and 146.0 points, IV 14.00% and 14.94% on the site's skew surface, dividend yield 3.05%), for up to £1,596.60 after the two £1.70 opening commissions (cash settlement at expiry involves no closing trade). It is European and cash-settled, so there is no early assignment and no SDRT, but one contract is about £107,500 of index exposure against Barclays' 1,000 shares (FTSE 100 contracts).