Bear Put Debit Spread Breakeven and Payoff Matrix
An investor executes a bear put spread by purchasing 1 ZTA Oct 70 Put for 6.50 and selling 1 ZTA Oct 60 Put for 2.00. At what market price does the investor break even at expiration?
Put spread breakeven = Higher Strike minus Net Debit. Net Debit = 6.50 - 2.00 = 4.50. Breakeven = $70 - $4.50 = $65.50.
Complete Analysis & Legal Rationale
Net debit paid = $6.50 - $2.00 = $4.50 per share ($450). For any vertical put spread, breakeven is found by subtracting the net debit from the higher strike price: $70.00 - $4.50 = $65.50.
Mathematical Step-by-Step Derivation
- Step 1: Net Debit = $6.50 - $2.00 = $4.50.
- Step 2: Breakeven = Higher Strike ($70.00) - Net Debit ($4.50) = $65.50.
- Buy Oct 70 Put-$650.00
- Sell Oct 60 Put+$200.00
Distractor Autopsy (Why Other Options Are Traps)
FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:
Higher strike ($70) minus net debit ($4.50) yields $65.50.
Arithmetic subtraction mistake ($70 - 5.50).
Adds net debit instead of subtracting.
Subtracts net debit from lower strike instead of higher strike.
Official Standard: Defines vertical put spread mechanics.