Option Strategy- Bear Put Spread

Bear put spread strategy description:

The strategy's outlook for this financial instrument is bearish in the short-term.  According to its typical characteristics, it will usually lose value through time decay. Eventually, if the short contracts' strike price is equal to the financial instrument’s price at expiration, it will end up worthless and the long contract will have intrinsic value equal to the strike minus the underlying asset’s price. If the short strike price ends above the instrument's price, it will be worth its intrinsic value (the difference of strike and the underlying price). In this case, most likely, the short contract's counterparty will assign your position and will place the account with short financial instrument.Selling short lower strike OTM put and buying at a higher ITM strike. 

Prospect direction: The stock will be short-termed bearish, considering the duration disadvantage and implied volatility advantage. As you already know, when a financial instrument declines, normally its IV value will increase and for this strategy, it is good news.

Profit potential: Limited by the higher strike minus lower strike minus premium paid to structure this setup.

Loss potential: Limited to a premium paid.

Risk / reward: The floor, the premium divided by the cap the limited profit.

Breakeven point at expiration: Premium received (paid) plus lower strike equal to the financial instrument’s market price.

Time factor: The setup's first leg is the long put, which will lose with time decay. If all other variables stay unchanged, a long-option contract typically loses a time value with every passing day, and the rate of time value losses tends to accelerate as it reaches to the end of its term, the expiration date.   The second setups leg is the short put. As with short option strategies, the passage of time has a positive impact.

Time remaining to expiration decreases the statistical chances for a loss, and its intrinsic value shrinks, too.

Implied volatility: Typically, an increase in implied volatility would positively affect this strategy, with all other variables being equal. Volatility tends to boost the value of any option because it indicates a greater statistical probability that the stock will move enough to give the option intrinsic value by the expiration day. On the other hand, a decline in volatility has a tendency to lower an option's value, regardless of the overall stock price trend.

Dividends: The dividend negatively affects the put option contract short seller. On an ex-dividend date, the amount of the dividend will deduct from the value of the underlying stock. The second setup's leg is the long put, which will gain from the dividend deduction.