Put Verticals
A Long Put Vertical is a bearish strategy that consists of buying a put option at a strike price and simultaneously selling a put option at a lower strike price. The combination of these trades will limit the maximum reward available but will also limit the risk incurred.
Any profit is "realized" if the price of the underlying security is below the break-even price of the vertical. Maximum profit is "realized" if the price of the underlying security is equal to or above the strike price of the short put.
Any profit is offset by the total premium paid. With a Long Put Vertical, the total premium paid (maximum risk) equals the premium you paid for buying the long put minus the premium received for selling the short put.
Short Put Vertical:
A Short Put Vertical is a bullish strategy that consists of selling a put option at a strike price and simultaneously buying a put option at a lower strike price. The combination of these trades will limit the maximum reward available, but will also limit the risk incurred.
Any profit is "realized" if the price of the underlying security is above the break-even price of the vertical. Maximum profit is "realized" if the price of the security is equal to or above the price of the short put. In this situation, both options expire worthless.
Maximum profit equals the premium received for selling the short put minus the premium paid for buying the long put.
