Options Strategy Guide
Bull Put Spread
Get paid to believe a stock won't fall below a level.
Intermediate
Bullish to Neutral
Defined risk, defined reward — credit received upfront
The Simple Version
Plain English — no jargon
You think a stock won't fall below $90. Someone pays you $2 today for that bet. If the stock stays above $90, you keep the $2. If it falls below, you lose — but you already bought a $85 put as insurance, so your loss is capped. You got paid upfront and your risk is defined.
How It Works — Step by Step
- 1 Sell an OTM put at a strike you believe the stock will stay above
- 2 Buy a further OTM put below it — caps your risk
- 3 Receive net credit upfront — your maximum profit
- 4 Maximum loss = spread width minus credit received
- 5 Profit if stock stays above the short put strike at expiration
Real Example
AAPL
Illustrative example — not a recommendation
Stock Price
$180.0
Strike Price
$170.0
Premium Collected
$2.1/share
Days to Expiration
30d
Max Profit
$210
Breakeven
$167.9
Annualized Return
26.2%
When to Use It — and When Not To
✓ Use when
- You are bullish or neutral — you expect the stock to hold above support
- IV is high — premium is expensive enough to justify the trade
- You want defined risk on both sides
✗ Avoid when
- You are bearish on the stock
- Stock is in a clear downtrend
- Earnings or major catalyst could gap the stock down through your short strike
Greeks & Mechanics (for the experienced trader)
Delta
Positive — profits if stock rises or stays flat.
Theta
Positive — time decay works in your favor.
Vega
Negative — rising IV hurts the short put you sold.
Gamma
Negative — large downward moves accelerate losses.
Key Risks
- A sharp drop through the short strike causes significant losses
- Max loss can be 2-5× the credit received
- Assignment risk on the short put if stock falls below it near expiration
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