Locking in Profits: How to Turn a Long Put into a Bear Put Spread
If you bought a put option before the market took a dive, you’re probably sitting on a solid profit. Your bearish bet has paid off, and your option is worth much more than when you bought it. But now you face a common dilemma: Do you cash out, or do you try to make even more money?
The tricky part is that volatility—the thing that helped boost your put’s value—doesn’t stay high forever. Once the market settles, implied volatility (IV) could drop, which means your put option might lose value even if the stock price stays the same.
For traders who want to protect profits while keeping some downside exposure, a simple adjustment can help: turning a long put into a bear put spread.
What’s a Bear Put Spread?
Instead of selling your put and closing the trade, you sell another put at a lower strike price. This converts your trade into a spread, locking in some of your gains while keeping a bearish position.
Here’s an example:
- You bought a XYZ $100 put for $5 when XYZ was trading at $110.
- Now, XYZ has dropped to $90, and your put is worth $15—a $10 unrealized gain.
- Instead of selling your put to take the profit, you sell a $85 put for $8.
- Now you have a $100/$85 bear put spread and have locked in part of your profits.
Why Make This Adjustment?
✅ You secure part of your gains – Selling the lower strike put puts cash in your pocket, reducing the risk of giving back all your profits.
✅ You lower your cost – Since you’re selling a put, you reduce the total amount of money tied up in the trade.
✅ You hedge against volatility shrinking – If IV drops, the long put alone could lose value fast. A spread helps cushion that impact.
The Trade-Off: Capped Profits
There’s always a downside to any adjustment. In this case, you won’t make more money if XYZ keeps falling below $85. Your maximum profit is now limited to the difference between the two strikes.
But here’s the key: Markets don’t move in a straight line. If you’re up big on a trade, locking in some gains with a bear put spread can help prevent the frustration of watching profits disappear.
For beginner traders, the takeaway is simple: When your put option has made a big move, don’t just think about how much more you could make—think about how to keep what you’ve already earned.
I’ll be discussing other ways to convert your long puts in my upcoming weekend report.
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