Stock Options Trading
and Technical Analysis Basics

Bearish Option Strategies

The strategies on this page are considered bearish, as the maximum profit is obtained if the underlying stock goes down in price. These trades are usually placed with an expiration date in the near future. Therefore the underlying stock price will need to decrease in the short term.

However, you can open a trade with a longer expiration date, but the options become more expensive due to the options' higher time value. This will cause these trades to be less profitable, or require the underlying stocks to decrease in price by a larger amount in order for the trades to break even and become profitable.

Click the links for each strategy in order to see more detailed descriptions and examples.


Covered Put

A Covered Put is a high risk strategy that is used for stocks that are expected to drop in price. It is created by shorting the underlying stock and selling its associated put option. It is a credit position providing initial income. You can earn a capped profit if the stock price falls, but can incur unlimited losses if the stock price rises.

Covered Put - Short Underlying Stock, Sell 1 ATM Put

Put Backspread

A put backspread is opened by buying 2 out-of-the-money put options and selling 1 in-the-money put option, earning you a net credit premium. This position is for high volatility with a bearish outlook. If the stock climbs, you keep your credit premium, if the stock falls, you earn unlimited profits. However, if the stock price doesn't move, you will incur losses due to buying back the put option you sold.

Put Backspread - Buy 2 OTM Puts, Sell 1 ITM Put

Synthetic Short Stock

A Synthetic Short Stock is a bearish strategy that involves buying a put option and selling the corresponding call option at the same strike price. You will see unlimited profits if the stock price keeps falling, but also suffer unlimited losses if the stock keeps climbing. Since options are sold in this position, it needs to be closed before expiration.

Synthetic Short Stock - Buy 1 ATM Put, Sell 1 ATM Call