Also called a 'bear put spread' or 'debit put spread'. You buy a put at a higher strike and sell a put at a lower strike with the same expiration. Reduces cost of the bearish play in exchange for capping profit potential.
Difference between strikes - Net premium paid
Net premium paid
Higher strike - Net premium paid
Long 1 higher-strike Put + Short 1 lower-strike Put (same expiry)
Both profit and loss are limited and defined at entry.
When you're moderately bearish and want to reduce cost. When you don\'t expect the stock to collapse completely. Defined risk alternative to buying puts outright.