Bull Put Spread

What is Bull Put Spread?

Bull Put Spread A bull put spread is a defined-risk bullish-to-neutral options strategy that collects net credit at entry. Structure: sell 1 out-of-the-money put (higher strike), buy 1 further out-of-the-money put (lower strike) as protection. The trader collects net credit and profits if the underlying stays above the short put strike. Maximum loss is the wing width minus the credit received. The terms "bull put spread" and "put credit spread" refer to the same structure. The "bull" name emphasizes the directional bias; the "put credit spread" name emphasizes the cash flow. Both are widely used. Mechanics: - Sell 1 OTM put (higher strike, e.g., 16-delta) - Buy 1 further OTM put (lower strike, the protection wing) - Same expiration on both legs - Net credit collected Worked example: SPY at $540, 30 DTE bull put spread - Sell 1 SPY $530P at $2.10 - Buy 1 SPY $525P at $1.10 - Net credit: $1.00 ($100 per contract) - Max profit: $100 if SPY closes above $530 - Max loss: $5 wing − $1 credit = $400 if SPY closes below $525 - Break-even: $529 (short strike − credit) - POP at entry: ~70% with 16-delta short strike - Capital required: $400 per contract (Reg-T or portfolio margin) The bull put spread is one of the most popular retail income strategies because: - **High probability of profit**: 65-75% at 16-delta short strikes - **Defined risk**: max loss capped at wing width minus credit - **Capital efficient**: small buying power relative to potential income - **Bullish bias rewards passive markets**: profits if the stock rises OR stays flat - **Theta-positive**: time decay works in your favor Bull put spread vs cash-secured put: - **Same directional bias** (both bullish/neutral) - **Capital**: bull put spread requires ~$400; CSP requires strike × 100 (~$53,000 for SPY) - **Per-dollar yield**: bull put spread ~25% on max profit; CSP ~0.4% - Use bull put spread for capital efficiency; use CSP when you'd want to own the shares Bull put spread vs bull call debit spread: - **Bull put spread**: collects credit, 65-75% POP, 0.25× reward-to-risk, favors high IV - **Bull call debit spread**: pays debit, 45-55% POP, 1.5× reward-to-risk, favors low IV - Both express the same bullish bias; choice depends on IV regime and risk preference When bull put spreads work: - IV rank above 50 (premium is rich) - Bullish or neutral 30-day view - Liquid underlying (tight bid-ask) - 30-45 DTE entries closed at 50% max profit - Earnings season volatility expansion (more premium to collect) When bull put spreads fail: - Sharp directional declines past the short strike - Vol expansions (short-vega exposure) - Holding to expiration (gamma risk in final 14 DTE) - Earnings-induced gaps below the wings Bull put spreads are the workhorse of retail premium-selling income strategies. Most options-trading platforms treat them as a first-tier strategy for new options traders because of the defined-risk profile and high probability of profit.