Introduction: The Strategy's Foundation
The bull put spread is an income-generating options strategy that builds on the short put by adding a protective long put to limit your downside risk. This protection explicitly defines your maximum loss, providing a predictable risk-reward profile.
Let's use the following example with SPY (the S&P 500 ETF Trust).
Scenario: SPY is currently trading at $665.14. You are moderately bullish and expect SPY to stay above $625 (your short strike) until the Dec 19th 2025 expiration (42 days).
Goal: You want a trade that reflects this bullish view, offers a high probability of profit, and has a defined maximum loss.
Solution: Enter the bull put spread!
Understanding Credit Spreads
The Bull Put Spread is a 'CREDIT SPREAD'.
The Bull Put Spread is a 'CREDIT SPREAD'.
A spread is an options strategy combining both a long (buying) and a short (selling) option contract of the same type (puts or calls) on the same underlying asset and the same expiration date.
Credit Spreads: You receive more for the option you sell than you pay for the option you buy (a net credit). You hope the spread loses value so you can buy it back later for a smaller debit.
Bull Put Spread Construction and SPY Example
The bull put spread is constructed entirely with put options on the same underlying asset and the same expiration date.
Bull Put Spread = Sell Higher-Strike Put + Buy Lower-Strike Put
The Short Leg (Income): You sell one put option at a higher strike price.
The Long Leg (Protection): You simultaneously buy one put option at a lower strike price.
Ratio: The ratio of long puts to short puts must be 1:1.
Debit vs. Credit
Since the put option you sell (the higher strike, closer to the money) has a higher premium than the put option you buy (the lower strike, further out-of-the-money), the bull put spread will always be established for a net credit.
Net Credit = Premium Received (Short Put) - Premium Paid (Long Put)
SPY Example Trade
Let's use your Dec 19th 2025 expiration trade (42 days):
We use the Dec 19th 2025 Expiry (42 days).
SPY Current Price: $665.14
Action: Sell the $625 Put for $5.48 (Bid Price on Short Leg)
Action: Buy the $621 Put for $5.01 (Ask price on Long Leg)
Net Credit Received: $5.48 - $5.01 = $0.47 (or $47 total per contract)
This creates a $625/$621 Bull Put Spread for a $0.47 credit. Your forecast is moderately bullish, expecting SPY to stay above $625.
Risk and Reward Profile
Maximum Profit (Reward)
The maximum profit is limited to the net credit initially received. This profit is realized if SPY closes at or above the higher strike price ($625) at expiration.
Max Profit = Net Credit Received
SPY Example: Max Profit = $0.47 or $47 per contract.
Maximum Loss (Risk)
The maximum loss is limited to the difference between the strike prices minus the net credit initially received. This loss occurs if SPY closes at or below the lower strike price ($621) at expiration.
Max Loss = Difference in Strike Prices - Net Credit Received
SPY Example:
Strike Difference: $625 - $621 = $4.00
Max Loss: $4.00 - $0.47 = $3.53 (or $353 per contract)
Return on Investment (ROI)
ROI= Max Profit \ Max Risk times 100
SPY Example: $47/$353 times 100 = 13.31%
A potential return of 13.31% over 42 days for a high-probability trade is a solid return profile.
Why the Bull Put Spread is a High-Probability Trade and a Great Beginner Strategy
The bull put spread is often favored by options traders, especially beginners, for two main reasons: high probability of profit and defined risk.
High Probability of Profit (PoP)
You Only Need the Stock to Stay Above the Breakeven: With the bull put spread, you profit as long as the stock price stays above your breakeven point (calculated below).
Downside Leeway is Your Edge: Your breakeven is significantly lower than the current stock price. The market only needs to avoid a large, sudden drop for you to win.
Time Decay Works for You: As a net seller of options (a credit spread), you have a positive Theta. Every day that passes, the value of the spread decays, working in your favor and increasing your probability of profit.
A Great Alternative to the Short Put Strategy for Beginners
The bull put spread is fundamentally superior to the naked Short Put Strategy for any trader not comfortable with taking on unlimited risk.
Max Loss is Defined: In the bull put spread, your maximum loss is capped and known before you enter the trade ($353). The short put alone has potentially unlimited loss (if the stock falls to $0). For beginners, risk management must be the first priority, and the long put provides this necessary insurance.
Lower Margin Requirement: Because your risk is defined, brokers require significantly less margin for a spread than for a short put. This makes the bull put spread much more capital efficient and accessible for smaller accounts.
Peace of Mind: Knowing the absolute worst-case scenario before you place the trade is invaluable. This defined risk allows you to manage your position without the stress associated with unlimited loss.
Break-Even Point and Downside Leeway
(at Expiration)
The break-even price is the higher strike price minus the net credit received.
Break-Even Price = Higher Strike Price - Net Credit Received
SPY Example: $625.00 - $0.47 = $624.53
Downside Leeway
This is the buffer the stock price has before the trade becomes a loser.
SPY Example: SPY at $665.14, Breakeven at $624.53.
SPY can fall $40.61 (a 6.10% drop) before the trade loses money at expiration.
In summary: The bull put spread allows beginners to collect premium (income) like a professional seller, but with the crucial guardrail of defined risk provided by the protective long put. It is a powerful first step into income-generating strategies.
The Greeks: Understanding Strategy Dynamics
The Greeks tell us how sensitive our spread is to market changes. Theta is the time decay. In a credit spread, you want time to pass, so your net theta is positive, meaning you profit every day the options lose value. Delta measures sensitivity to the stock price. Since you want the stock to rise, your net delta is positive—you have a net bullish bias, equivalent to owning a few shares. Both a positive Theta and a positive Delta work to your advantage when the stock stays flat or moves up.
Calculating Net Greeks
We use the provided data:
$625 Put (Short): Delta -0.189, Theta -0.159, Vega 0.648
$621 Put (Long): Delta -0.173, Theta -0.137, Vega 0.592
Impact of Time Decay (Theta)
For a bull put spread, the short put (higher strike) loses time value faster than the long put (lower strike). This results in a positive net Theta.
SPY Example Net Theta: (Short Put Theta) - (Long Put Theta)
-(-0.159) + (-0.137) = +0.022
This means the spread theoretically profits about $2.20 per day due to time decay.
Net Theta = Short Put Theta (Positive)} + Long Put Theta (Negative)
Impact of Delta
The spread has a small, positive net Delta, indicating a bullish bias.
SPY Example Net Delta: (Short Put Delta) - (Long Put Delta)
-(-0.189) + (-0.173) = +0.016
This means the value of the spread will increase by about $1.60 for every $1.00 rise in SPY.
Net Delta = Short Put Delta (Positive)} - Long Put Delta (Negative)
Impact of Volatility (Vega)
The bull put spread is typically a net short Vega position. This means the spread loses value (becomes less profitable) if implied volatility (IV) rises, and gains value (becomes more profitable) if IV falls.
SPY Example Net Vega: (Short Put Vega) - (Long Put Vega)
-(0.648) + (0.592) = -0.056
Placing the Trade, Picking the Strikes and Assignment Risk
Picking the Strikes (The Trade-off)
The strike prices you choose determine the Probability of Profit (PoP) versus the Reward (Credit Received).
Least Bullish (Our Preference): Choose strikes where both puts are Out-of-the-Money (OTM) (e.g., Short $625, Long $621 when SPY is $665.14). This offers the Highest PoP (often 80%+) but the Lowest Credit. We prioritize high PoP.
Moderately Bullish: The underlying price is between the two strikes. This offers a balanced PoP and Credit.
Most Bullish: Both puts are In-the-Money (ITM). This offers the Lowest PoP but the Highest Credit.
Assignment Risk
Assignment risk exists on the short put leg if the option moves in-the-money (SPY falls below $625). While assignment can occur early, the long put ($621) always defines your maximum loss. If the stock price approaches your short strike before expiration, it is generally recommended to close the spread to avoid assignment risk.
Actions to take at Expiry
Your course of action depends entirely on SPY’s price relative to your strikes at expiration.
Scenario 1: Price is above the Short Put (above $625). Both options expire worthless. You keep the full credit.
Scenario 2: Price is below the Long Put (below $621). You hit max loss. Your broker typically handles the assignment and exercise for the max loss amount.
Scenario 3: Price is Between the Strikes (between $625 and $621). The short put is in-the-money, and the long put is worthless. You have a partial loss or profit. The best choices here are to close the trade for a net debit to realize the P&L, or to roll the entire spread out to the next month for a new credit to give the trade more time to recover."
💡 Course Summary and Next Steps
The Bull Put Spread is a foundational strategy for options traders, particularly those beginning to explore income generation. By defining your maximum risk upfront, it offers a high-probability way to profit from a neutral to moderately bullish outlook.
Key Takeaways
Definition: The Bull Put Spread is a credit spread constructed by selling a high-strike put and buying a lower-strike put (same expiration).
Trade Example (SPY $625/$621, 42 days):
Net Credit Received (Max Profit): $0.47 ($47 total).
Max Loss: ($4.00 strike width) - ($0.47 credit) = $3.53 ($353 total).
Break-Even: $625 (Short Strike) - $0.47 (Credit) = $624.53.
ROI: 13.31% over 42 days.
High Probability Edge: Your position profits as long as the stock stays above your break-even price ($624.53), giving you significant downside leeway from the current price ($665.14).
Beginner Advantage: Unlike the naked short put, this spread has defined and capped risk, making it a safer and capital-efficient strategy for new traders.
Greeks: The spread benefits from the passage of time (positive Theta) and has a slight bullish bias (small positive Delta).
Actionable Next Steps
🚀 Elevate Your Trading Skills with a Mentor
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📉 Ready for the Bearish Counterpart?
You've mastered the Bull Put Spread, which profits when the market goes up or sideways. Now, it's time to learn the strategy that profits when the market goes down or sideways: the Bear Call Spread.
Placing and Managing trades with an online broker
Test Your Knowledge 1
CLICK HERE to take the quiz
Test your knowledge 2
At this stage it is best if you start practicing for real so this is what we want you to do:
Pick any option able stock that you have a mildly bullish outlook
Place a Bull Put Spread
Do a profit & Loss table
Place the trade in a 'Simulated' or 'Demo' account with an online broker
Identify your breakeven
Identify your Max Loss
Identify your Max Profit
Share your insights on our daily members web meetings
Review on Google
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