Bear Spread

What is a bank spread?

Bank spread is the difference between the interest rate that a bank charges a borrower and the interest rate a bank pays a depositor. Likewise called the net interest spread, the bank spread is a percentage that lets somebody know how much money the bank procures versus the amount it gives out.

More profound definition

A bank brings in cash from interest it gets on loans and other assets, and it pays out money to customers who set aside installments into interest-bearing accounts. The ratio of money it gets to money it pays out is called the bank spread.
The bank spread can show a bank's profit margin. A high spread compares to a higher profit margin, since the difference between interest earned and interest paid out is high.
Nonetheless, bank spread measures the average difference among lending and borrowing interest rates, not the amount of banking activity itself, and that means that bank spread doesn't be guaranteed to demonstrate a financial institution's profitability.
In the event that you invest money in a certificate of deposit (CD), you can begin earning interest for yourself.

Bank spread model

Consider a bank that loans money to customers at an average rate of 8 percent. Simultaneously, the interest rate the bank pays on funds that customers deposit into their personal accounts is 1 percent. The net interest spread of that financial institution would be 8 percent minus 1 percent, bringing about a bank spread of 7 percent.

Highlights

• There are two types of bear spreads that a trader can start — a bear put spread and a bear call spread.
• Bear spreads accomplish maximum profit on the off chance that the underlying asset closes at or below the lower strike price.
• The strategy includes the simultaneous purchase and sale of either puts or calls for a similar underlying contract with a similar expiration date yet at various strike prices.
• A bear spread is a bearish options strategy utilized when an investor anticipates a moderate decline in the price of the underlying asset.