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Ouch! I'm sorry, I messed up in my second post. The investor's maximum downside is the debit spread, which is 53 cents a share, not $13.53 a share. The investor would realize this loss if the stock price went above the higher option's strike price, causing both puts to expire worthless.

The investor's maximum upside would be the difference between the strike prices minus the net debit, or $16.00 - $13.00 - $0.53 = $2.47 a share. This maximum profit would occur if the stock price was at or below $13.00 at option expiration, as the investor could sell the stock at $16.00 with his long put and buy the stock at $13.00 with his short put, and it cost him $0.53 to enter into this position.


Here's the OIC's page describing the bear put spread. I'd suggest reading this for a better overview of this strategy:
http://www.888options.com/strategy/bear_put_spread.jsp


Please disregard my second post.


Mike
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