Why is the maximum loss with a bear spread is only the net cost of the options, why didn’t we include the short put value in the calculation, since we are losing as we are buying the stock at for example Strike price (low let’s say 45) when it is market value lower than that?
For a bear spread, the strategy pays off when the underlying’s price drops. If the price of the underlying rises, then the options are out of the money. Thus, we are out the net cost of the options.
Drawing the payoff graph will show why this happens.
Because it is a complete strategy (Buy and sell the two options) Net costs here refers to the net amount( the difference between the cost of the option you bought against the proceeds from one you sold), the scenario this strategy will lose is when the underlying rises up in price ( because it will be highly unlikely that someone sell you the underlying with a price less than the market price) so your strategy wouldn’t be used and therefore you lost its “net amount”
And another note, i noticed that you gave an example with you are buying “low”, in a bear strategy you will a;lways buy an option with a “high” exercise price and sell another with a “low” exercise price
The maximum loss is the net cost of the options _ if and only if the bear spread is built with put options _. If it is built with call options, the cost is negative (i.e., you’re net positive at inception, but the payoff is zero or negative).