Put spreads are options strategies that involve an equal number of put options being bought and/or sold at the same time.
Put spreads have limited profit potential compared to simply buying puts, but they generally cost less to implement. Additionally, they can be implemented to profit from bullish, bearish or neutral market conditions — whereas simply buying put options is a strategy primarily for bearish traders.
How many different put spreads are there?
There are three different directions in which put spreads may be constructed — with bearish, bullish and/or neutral implementations within. The three types put spread directions are:
- Vertical put spreads
- Calendar put spreads
- Diagonal put spreads
Vertical put spreads are perhaps the easiest to construct and are commonly used in options trading. They are implemented when both the short and long puts have the same expiry but different strike prices.
Vertical put spreads can be either bullish or bearish, with the former being constructed if the trader believes the underlying cryptocurrency’s price will increase before the options expire. Likewise, bearish vertical put spreads are constructed if the trader expects the price of the underlying coin or token to decrease before the options expire.
Calendar put spreads (which may also be called horizontal put spreads) are constructed through the purchase of long-term put options and sale of short-term put options — both with the same strike price.
Calendar put spreads may be either neutral or bearish, with no bullish construction possible. If the trader uses at-the-money options in the construction of this strategy, the calendar put spread is said to be neutral and aims to profit from the expiration of the short-term put option. Out-of-the-money put options are employed in the construction of a bear calendar put spread.
Finally, diagonal put spreads — which are actually quite similar to bearish calendar put spreads — are constructed through the purchase of long-term put options and the sale of short-term put options with a higher strike price. In this construction, the trader is more bearish in the short-term than one implementing a bear calendar put spread.
Source: https://www.okx.com/academy/en/put-spreads-explained