Buy a put, sell a lower-strike put beneath it, same expiry. The short leg refunds part of the premium and in exchange the payoff goes flat below its strike, so this is a bounded bearish position rather than an open-ended one. It fits a decline expected to a level rather than to zero, and it stops you paying full premium for a tail nobody in the trade actually believes in. Both legs decay, which softens the usual bleed on a long option without removing it. Price the pair here and check where the breakeven falls relative to the support level you had in mind when you opened the chain.
Priced and margined as a single vertical, same as the call version, which matters because legging in manually exposes you to the underlying moving between the two fills. The short leg's strike is the real lever: pushing it lower raises the credit received against the long put and narrows the width, a cost decision as much as a directional one. Because downside strikes carry more implied volatility than equivalent upside ones, the short leg here typically funds more of the long put than a same-width call spread funds its long call.
Because the short leg funds part of the long one, this is usually approved at the same account tier as the bull call spread rather than at the tier a naked short put needs — the defined risk is what qualifies it. Tax treatment follows the usual short-term/long-term line at one year regardless of the spread's own life, and the two legs are treated as separate lots for that purpose even though they were opened and will likely close together. A partial fill — one leg executing before the other — briefly leaves a naked position; many platforms reject partial fills on a combined order for exactly this reason.
Common mistake. The common mistake is setting the short strike too close to the long one to save on debit, which shrinks the maximum profit far more than it shrinks the risk of the trade being wrong.
| # | Action | Instrument | Strike |
|---|---|---|---|
| 1 | Buy | Put | 230 |
| 2 | Sell | Put | 215 |
Computed from the same strikes and net premium as the worked example above — not a simulation, the closed-form payoff evaluated at each price.
| AAPL at expiry | P&L |
|---|---|
| 200 | $990.00 |
| 210 | $990.00 |
| 220 | $490.00 |
| 230 | -$510.00 |
| 240 | -$510.00 |
| 250 | -$510.00 |
| Strategy | Market view | Opened for | Legs vs. this one |
|---|---|---|---|
| Long Put | Bearish — directional, or a hedge | Debit | -1 |
| Bear Call Spread | Bearish to neutral — income | Credit | same |
| Collar | Neutral — hedged, bounded | Debit or credit | +1 |
| Long Strangle | Volatility — direction-agnostic | Debit | same |