A long put-spread contains a long put option with strike price K1 and a short put option with strike price K2, with the same expiration date. Furthermore, K1 < K2. From which market price action does the bull put-spread profit? What does the pay-off diagram of a bull put spread look like?

Q: Long Put Spread

The goal of a long put-spread is to profit from a gradual price decline in the underlying stock. The diagram looks as follows: [caption id="attachment_95656" align="aligncenter" width="561"] Figure 1 – Pay-off diagram of a bear put spread.[/caption]

Interview Questions Derivatives Theory Long Put Spread

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