Bear Put Debit Spread: Calculating Breakeven and Payoff Profile
A bearish trader buys 1 Delta Aug 85 Put for $7.00 and sells 1 Delta Aug 75 Put for $2.50 when Delta stock is at $83. What is the trader's breakeven price and maximum loss per share?
In a bear put debit spread: Net Debit = $7.00 - $2.50 = $4.50 (Max Loss). Put Breakeven = Higher Strike - Net Debit = $85 - $4.50 = $80.50.
Complete Analysis & Legal Rationale
The net debit paid is $7.00 - $2.50 = $4.50 per share ($450 total), which is the maximum possible loss. For put spreads, Breakeven = Higher Strike ($85) - Net Debit ($4.50) = $80.50. Max gain is the strike differential ($85 - $75 = $10) minus net debit ($4.50) = $5.50 per share ($550 total).
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:
In a bear put debit spread: Net Debit = $7.00 - $2.50 = $4.50 (Max Loss). Put Breakeven = Higher Strike - Net Debit = $85 - $4.50 = $80.50.
Fails to reflect correct options pricing/mechanics for B.
Fails to reflect correct options pricing/mechanics for C.
Fails to reflect correct options pricing/mechanics for D.
Official Standard: The net debit paid is $7.00 - $2.50 = $4.50 per share ($450 total), which is the maximum possible loss. For put spreads, Breakeven = Higher Strike ($8