In a bear spread with puts, what positions are taken on the strikes?

A bear spread with puts is a specific options trading strategy aimed at profiting from a decline in the price of the underlying asset. In this strategy, the trader buys a high-strike put option while simultaneously selling a low-strike put option.

The rationale behind this approach is to leverage the bearish market outlook. By purchasing the high-strike put, the trader secures the right to sell the underlying asset at that higher price, while selling the low-strike put generates income that helps offset the cost of the high-strike put. The maximum profit occurs if the underlying asset decreases substantially below the low strike price at expiration, while the maximum loss is limited to the initial net premium paid for establishing the spread.

This strategy effectively embodies the principles of a bear spread: it enables the trader to take a position that benefits from the anticipated price depreciation of the underlying asset, all while managing risk through the hedging nature of the options involved. The combination of buying and selling the puts at different strike prices is what characterizes this type of spread.