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Strategy View
Investor thinks that the market will be flat or rise only slightly in the
short-term, but will then fall later.
Strategy Implementation
Sell a near-dated put option and buy a longer dated out-of-the-money put.
Upside Potential
Large, if the bought option is held after the short option expires (the
position then becomes a straight-forward buy put). If the position is
closed at expire of the near option, maximum profit will accrue if the
market is at the level of the sold strike.
Downside Risk
Limited to the difference in strikes plus/minus the initial debit/credit
when establishing the spread.
Margin
Yes, but limited.
Comment
There is a risk of the sold options being called (i.e. being exercised).
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