# Modeling A Bear Spread Using Python

## Overview:

• The players of the options market employ a bear spread when they consider the market is going to be bearish in the short run.
• Forming of a bear spread involves the following transactions:
1. Buying of a European put option with one strike price (K1)
2. Selling of a European put option with the strike price (K2) less than the strike price of transaction 1.
• When the stock price moves less than K1 there is a limited profit.
• When the stock price is between K1 and K2, there is a limited profit.
• If the stock price moves to K2 or above K2, the profit is zero. There is no loss as well.

## Example: Modeling of a Bear Spread using Python

 # Python example that models a bear option spread   stockPrice  = 70; K1          = 80; K2          = 90;   # Stock price goes upwards i = 0 while i < 5:     stockPrice  = stockPrice + 5     payoff      = 0     if (stockPrice > K1 and stockPrice < K2):         payoff      = K2-stockPrice;     elif (stockPrice <= K1):         payoff      = K2-K1;     elif (stockPrice >= K2):         payoff  = 0;     else:         payoff  = 0;            print("Stock price:%2.2f"%stockPrice);     print("Payoff from bull spread:%2.2f"%payoff);     print("-")     i = i + 1;     stockPrice = 70;      # Stock price goes downwards while i >= 0:     stockPrice  = stockPrice - 5;     payoff      = 0     if (stockPrice > K1 and stockPrice < K2):         payoff      = K2-stockPrice;     elif (stockPrice <= K1):         payoff      = K2-K1;     elif (stockPrice >= K2):         payoff  = 0;     else:         payoff  = 0;            print("Stock price:%2.2f"%stockPrice);     print("Payoff from bull spread:%2.2f"%payoff);     print("-")     i = i -1;