Module 6.

2
Adjusting The Bear Put Spread

Adjusting The Bear Put Spread

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 Module 6.2
Adjusting The Bear Put Spread

Review of The Bear Put Spread

Debit Spread
Buy to Open the Trade
Long Put is Placed At or Just Out of the Money and Typically 45-90 Days to
Expiration. This is our Primary or Money Making Option.
Short Put is Placed One or Two Strike Prices Lower and in the Same Month of
Expiration. This is our Secondary or Hedging Option.
Cost Basis or Net Debit of the Trade is the Debit of the Long Put Minus the Credit
of the Short Put
Max Risk = Cost Basis
Max Reward = The Difference Between the Strike Prices Minus the Cost Basis
Good Target ROI is 15-30%
Good Target Time in the Trade is Under 6 weeks (2-3 weeks is preferable).
Place This Trade When We Are Expecting Strong Bearish Movement
This Trade Can Also be Used as a Hedge for Stock Ownership In Place of Married
Puts or a Collar Trade
 Module 6.2
Adjusting The Bear Put Spread
Adjustment for Slow Bearish Move
 Open the Trade Expecting
Strong Bearish Movement
 Stock price moves into a slower
Bearish movement
 Roll our short puts in and up to
LP create a put, or bear put
calendar.
 Short puts again if they expire
SP
worthless and we are still in the
trade.
 Module 6.2
Adjusting The Bear Put Spread

LP

SP
 Module 6.2
Adjusting The Bear Put Spread
Adjustment for Bullish Move
 Open the Trade Expecting
Strong Bearish Movement
 Stock price reverses direction
and moves Bullish.
LP  Roll our short puts in and up to
create a bull put calendar, or
SP straight up to create a bull put
spread.
 Module 6.2
Adjusting The Bear Put Spread

LP

SP
 Module 6.2
Adjusting The Bear Put Spread
 Never forget your
cost basis.
 Money in; money
out.
 Buy to close the
Oct13 $77.50 for
$0.59.
 Sell to open the
Sep13 $82.50 for
$0.64.
 Spend $0.59 to
close, and take in
$0.64 to open.
 Our cost basis
goes down by
$0.05 per share.
 Module 6.2
 Never forget your cost basis. Adjusting The Bear Put Spread
 Money in; money out.  Never forget your
 Buy to close the Oct13 $77.50 for $0.59. cost basis.
 Sell to open the Sep13 $85.00 for $1.76.  Money in; money
 Spend $0.59 to close, and take in $1.76 to open. out.
 Our cost basis goes down by $1.17 per share.  Buy to close the
Oct13 $77.50 for
$0.59.
 Sell to open the
Oct13 $87.50 for
$4.75.
 Spend $0.59 to
close, and take in
$4.75 to open.
 Our cost basis goes
down by $4.16 per
share.
 Module 6.2
Adjusting The Bear Put Spread

Summary
1. When a stock on a bear put spread moves in a slow bearish to
stagnant trend, we can:
1. Roll our short put in or up, or both.
2. Short additional puts after our first set of short puts expires worthless.
2. When a stock on a bear put spread moves into a bullish trend, we
can:
1. Roll our short put in and up to a higher strike than our long put creating a
bull put calendar.
2. Roll our short put straight up to a higher strike in the same month of
expiration, creating a bull put spread.
3. Always keep track of our cost basis and how it changes as we roll
the option.