What is a put spread in options trading?

A put spread refers to an options trading strategy that involves using two put options with different strike prices or expiration dates to take advantage of bearish market conditions while managing risk and cost. The strategy is employed by buying one put option and selling another put option at a lower strike price (or the same expiration date). This combination offsets the cost of the purchased option, allowing the trader to limit their potential loss while maintaining the opportunity for profit.

In this strategy, the put option that is bought gives the trader the right to sell an underlying asset at a specified price, while the sold put option generates premium income that decreases the overall cost of establishing the position. The difference between the strike prices defines the maximum gain and loss in the trade, making it a more controlled way to take a bearish position compared to outright buying puts or selling naked puts.

The other choices illustrate different options strategies, such as selling puts or buying calls, which do not align with the definition of a put spread. Therefore, the first option accurately captures the essence of what a put spread is in options trading.