# Bearish Trend Option Strategies

The most popular bearish view option strategies are:

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a. Naked Put Buy:

The buyer of a put option expects the asset price to go down in the short term or for a brief period. It is a single leg long put option contract.

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Directional view: Bearish

Implied Volatility view: Increase

Max loss: Limited

Max Profit: Unlimited

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Greeks impact:

Increase in IV: Positive

Theta Decay: Negative

Delta: Negative

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Unfavorable Scenario:

a. The asset price rise or remains sideways

b. Decrease in Implied Volatility (IV)

Payoff Diagram:

b. Put Spread:

Put Spread is the combination of buying an ATM (at-the-money) put option contract & shorting an OTM (out-of-the-money) put option contract. It is a debit option strategy

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Directional view: Mild Bearish

Implied Volatility view: Increase

Max loss: Limited

Max Profit: Limited

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Greeks impact:

Increase in IV: Positive

Theta Decay: Negative

Delta: Negative

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Unfavorable Scenario:

a. The asset price rise or stays above the long put option strike price

b. Decrease in Implied Volatility (IV)

Payoff Diagram:

c. Calendar Put:

A calendar put is a combination of shorting the current expiry ATM (at-the-money) put option contract & going long next expiry ATM put option contract.

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Directional view: Mild Bearish

Implied Volatility view: Increase

Max loss: Limited

Max Profit: Limited

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Greeks impact:

Increase in IV: Positive

Theta Decay: Positive

Delta: Negative

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Unfavorable Scenario:

a. The asset price stays outside the breakeven range

b. Decrease in Implied Volatility (IV)

Payoff Diagram:

d. Diagonal Call:

A diagonal call is a bearish strategy. It is a combination of shorting the near-expiry ATM call and the long far-expiry OTM call.

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Directional view: Bearish

Implied Volatility view: Decrease

Max loss: Limited

Max Profit: Limited

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Greeks impact:

Increase in IV: Negative

Theta Decay: Positive

Delta: Negative

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Unfavorable Scenario:

a. The asset price rise or stays above the long put option strike price

b. Increase in Implied Volatility (IV)

Payoff Diagram:

e. Put Ratio Backspread:

Put Ratio Backspread is a bearish strategy. It is a combination of shorting the near-expiry ATM put and buying twice the quantity of OTM (out-of-the-money) puts.

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Directional view: Bearish

Implied Volatility view: Increase

Max loss: Limited

Max Profit: Limited

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Greeks impact:

Increase in IV: Positive

Theta Decay: Negative

Delta: Negative

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Unfavorable Scenario:

a. The asset price rise or remains above bought put option strike price

b. Decrease in Implied Volatility (IV)

Payoff Diagram:

f. Modified Put Butterfly:

Modified put butterfly is a bearish strategy. It is a combination of a long ITM put option & shorting twice the quantity ATM put options & a long far OTM put option

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Directional view: Mild Bearish

Implied Volatility view: Decrease

Max loss: Limited

Max Profit: Limited

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Greeks impact:

Increase in IV: Negative

Theta Decay: Positive

Delta: Negative

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Unfavorable Scenario:

a. The asset price falls or remains about bought ITM option strike price

b. Increase in Implied Volatility (IV)

Payoff Diagram:

g. Bear Call Spread:

Bear Call Spread is a bearish strategy. It is a combination of shorting the OTM call option & buying an upper strike OTM call option as a hedge.

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Directional view: Neutral to Bearish

Implied Volatility view: Decrease

Max loss: Limited

Max Profit: Limited

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Greeks impact:

Increase in IV: Negative

Theta Decay: Positive

Delta: Negative

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Unfavorable Scenario:

a. The asset price falls or remains above the long OTM option strike price

b. Increase in Implied Volatility (IV)

Payoff Diagram:

h. Strip:

Strip is similar to the long straddle options strategy. It only requires one adjustment of buying additional put options for a bearish bias.

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Directional view: Bearish

Implied Volatility view: Increase

Max loss: Limited

Max Profit: Unlimited

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Greeks impact:

Increase in IV: Positive

Theta Decay: Negative

Delta: Negative

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Unfavorable Scenario:

a. The asset price remains in a range

b. Decrease in Implied Volatility (IV)

Payoff Diagram:

h. Short Combo:

Short Combo is a strong bearish bias strategy. It is a combination of a long OTM PUT option & short OTM call option.

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Directional view: Bearish

Implied Volatility view: Neutral

Max loss: Unlimited

Max Profit: Unlimited

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Greeks impact:

Increase in IV: Positive

Theta Decay: Negative

Delta: Negative

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Unfavorable Scenario:

The asset price falls or remains below the long put option strike price

Payoff Diagram: