Bull Put Spread

A bull put spread, also called a short put spread or put credit spread, sells a put at one strike and buys a put at a lower strike with the same expiration. You receive a net credit when you open the trade. If the underlying stays above the higher (short) strike through expiration, both puts expire worthless and you keep the credit. The long put caps your loss if the market falls. It is a popular way to sell premium with defined risk.

Construction#

1. Sell a put at a higher strike, usually out of the money.
2. Buy a put at a lower strike for protection.
3. Same underlying and expiration.
4. Receive a net credit.

Payoff at a glance#

Worked example#

Probability and reward#

Credit spreads have high win rates and poor reward to risk ratios. The market prices them so that, before costs, expected value is close to zero; your edge must come from good judgement about direction or volatility, or from the volatility risk premium. See Expected Value and Theta Harvesting.

break even win rate ≈ max loss / (max loss + max gain)

In the example, 400 / (400 + 100) = 80%. The short put's delta (perhaps around 0.20) suggests roughly an 80% chance of finishing above $140, which shows how fairly priced such spreads usually are.

Choosing strikes and width#

Many traders place the short strike below a support level or at around 0.20 to 0.30 delta. See Support and Resistance and Delta.

Managing the trade#

• Take profits at 50% to 75% of the credit rather than waiting for expiry.
• Define a loss point, such as when the spread's value reaches two times the credit, or when the stock breaks the short strike.
• Roll down and out if challenged: close and open a new spread at lower strikes and a later expiry, ideally for a credit.
• Avoid holding through earnings unless intended. See Earnings Trading.

Bull put spread vs cash secured put#

See Cash-Secured Put.

Assignment#

If the short put goes deep in the money, it may be assigned early, leaving you long shares. Your long put still caps the loss. Close or exercise as needed. See Exercise and Assignment.

Common mistakes#

• Selling spreads with very small credits relative to risk.
• Holding losing spreads to maximum loss without a plan.
• Selling many correlated spreads, which all lose together in a selloff.
• Ignoring costs: commissions on four legs (to open and close) eat into small credits.

Frequently asked questions#

What is a bull put spread?#

Selling a put and buying a lower strike put with the same expiry for a net credit, profiting if the underlying stays above the short strike.

What is the maximum loss on a bull put spread?#

The difference between the strikes minus the credit received, multiplied by the contract size.

Is a bull put spread a good strategy?#

It offers defined risk and a high win rate, but losses are larger than gains, so it needs careful strike selection, sizing and loss management.

Next, learn the bearish credit spread in Bear Call Spread.