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Glossary of Terms and Strategies for Options Trading
Complete Options Glossary: Strategies, Terms, Greeks, and Option Selling Techniques. Clear, concise, and suitable for both beginners and advanced traders. Learn to trade options effectively.
Strategie
Beginner, Speculation
Put Debit Spread
A strategy involving buying a higher-strike put and selling a lower-strike put with the same expiration, resulting in a net debit.
Detail
Put Debit Spread is a bearish options strategy in which a trader buys a higher strike put and sells a lower strike put, both with the same expiration. This creates a net debit and profits from a decline in the underlying asset while limiting both risk and reward.
The strategy takes advantage of a downward move in the underlying. Max profit is achieved if the price finishes below the lower strike. If the price remains above the higher strike, the spread expires worthless and the trader loses the premium paid. Compared to a long put, this spread reduces cost but also caps the profit. Breakeven is the higher strike minus the debit paid. This strategy benefits from rising volatility and defined downside exposure.
Optimal conditions
Used when expecting a stronger bearish move, in low or rising IV environments, when seeking a lower-cost bearish position.
Max profit
Limited – strike difference minus debit.
Max loss
Limited – equal to the debit paid.
Risks
Lower gain if the market doesn’t move. Full premium at risk in sideways markets. Not ideal for neutral conditions.
Greeks
Delta: negative, Theta: negative, Vega: positive.
Variations
Bear Put Spread, diagonal put spread.
Usage example
Buy 110 put, sell 100 put. Max profit below 100, total loss above 110.
DTE
Typically 20–45 days.
IV (implied volatility)
Best used in low or rising IV.
Premium
Premium paid (debit).
Margin
Low margin, often covered.
Notes
Cheaper than long put, but with capped profit potential.
Tags
put debit spread, bear put spread, debit spread, bearish, limited risk, directional
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