Market Crash Got You Down? Try These Three Bearish Option Trades

With the market crashing 5% today, we’re going to look at how to find bearish options trade ideas using the Bear Put Spread Screener.

A bear put spread is a vertical spread that aims to profit from a stock declining in price. It has a bearish directional bias as hinted in the name. Unlike the bear call spread, it suffers from time decay so traders need to be correct on the direction of the underlying and also the timing.

A bear put spread is created through buying an out-of-the-money put and selling a further out-of-the-money put.

The maximum profit is equal to the distance between the strikes, less the premium paid. The loss is limited to the premium paid.

Let’s take a look at Barchart’s Bear Put Spread Screener for today:

Let’s strengthen the screener by filtering for stocks with a Sell rating.

Some interesting trades here with impressive Max Profit Percentage. Let’s take a look at the first item in the table – a bear put spread on Apple (AAPL).

AAPL Bear Put Spread Example

Using the July 15 expiry, this trade involves buying the 150 put and selling the 135 put.

The price for the trade is $3.89 which means the trader would pay $389 to enter the trade. This is also the maximum loss. The maximum gain be calculated by taking the width between the strikes and subtracting the premium paid:

15 – 3.89 x 100 = $1,111

The breakeven price for the trade is equal to the long put strike, less the premium. In this case, that gives us a breakeven price of 146.11.

Let’s look at the second example using Disney (DIS)

Disney Bear Put Spread Example

The DIS example above is also using the July 15 expiry and involves buying the 110 strike put and selling the 90 strike put.

The cost of the trade is $530 which is also the maximum loss with the maximum possible gain being $1,470. The maximum gain would occur if DIS stock fell below 90 on the expiration date.

The breakeven price is 104.70.

The Barchart Technical Opinion rating is a 100% Sell with a strongest short term outlook on maintaining the current direction. 

Walt Disney Company has assets that span movies, television, publishing and theme parks. In October 2020, Disney reorganized its media and entertainment operations, which had been previously reported in three segments: Media Networks, Studio Entertainment and Direct-to-Consumer & International. From the first quarter of fiscal 2021, Disney began reporting the financial results of the media and entertainment businesses as one segment, Disney Media and Entertainment Distribution (DMED) across three significant lines of businesses: Linear Networks, Direct to- Consumer and Content Sales/Licensing.

Let’s look at another example, this time on Intel (INTC)

Intel Bear Put Spread Example

The INTC example from the screener is using the July 15 expiry and involves buying the 45 strike put and selling the 37.50 strike put.

The cost of the trade is $215 which is also the maximum loss with the maximum possible gain being $535. The maximum gain would occur if INTC stock fell below 37.50 on the expiration date.

The Barchart Technical Opinion rating is a 100% Sell with a strongest short term outlook on maintaining the current direction. 

Intel Corporation, one of the world’s largest semiconductor company and primary supplier of microprocessors and chipsets, is gradually moving into data-centric businesses such as AI and autonomous driving. Intel is a dominant player for microprocessors in both consumer and enterprise markets. Data Center Group, Internet of Things Group, Mobileye, Non-Volatile memory solutions group and Programmable solutions Group and All Other business units form the crux of Intel’s data-centric business model. DCG segment deals with servers, workstations and other products for cloud, enterprise, and communication infrastructure market. IOTG offers high-performance compute solutions and embedded applications. PSG segment offers programmable semiconductors, primarily FPGAs and structured ASICs. Mobileye is engaged in developing computer vision and machine learning-based sensing, data analysis, localization, mapping, and driving policy technology for ADAS and autonomous driving.

Mitigating Risk

Thankfully, bear put spreads are risk defined trades, so they have some build in risk management. The maximum loss is always limited to the premium paid, so we always know the worst case scenario.

For each trade consider setting a stop loss of 30% of the max loss.

Please remember that options are risky, and investors can lose 100% of their investment. This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.

*Disclaimer: On the date of publication, Steven Baster did have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. Data as of after-hours, May 5, 2022.