Module 1: Strategy Logic & The "Smart" Choice
Watch: Setting up the US 500 Bull Put Spread
Traditional Options vs. Spread Betting
IG’s "options" are actually Spread Bets based on option prices, offering a unique edge for traders in the UK and Ireland.
Tax Status: Spread betting is unique to the UK and Ireland. Profits are exempt from Capital Gains Tax (CGT) and Stamp Duty.
Trade Unit: Instead of "contracts" (100 shares), you trade in $ per point (or £ per point).
The Credit Advantage: Unlike the Bear Put Spread where you pay a debit, here you receive a credit upfront. You are the "house" collecting the premium.
Currency: You can trade US markets in GBP or USD to avoid FX conversion fees.
Note: While you can fund in Euro, spread bets on options are executed in GBP or USD only.
What is a Bull Put Spread?
A Bull Put Spread is a "credit spread" used when you are neutral to bullish.
How to build it on IG:
Sell a Put Option at a higher strike price (this is the "income" leg).
Buy a Put Option at a lower strike price (this is your "insurance" leg).
Why use this strategy?
Instant Income: You get paid to enter the trade.
High Probability: You win if the market goes up, stays flat, or even drops a little.
Defined Risk: Your max loss is strictly capped, protecting you from "Black Swan" market crashes.
Why the Bull Put Spread is the "Smart" Choice for Novice Investors
If the Short Put has a 93% success rate, why would we bother adding a second leg and turning it into a Bull Put Spread? The answer lies in Risk vs. Peace of Mind.
When you sell a "Naked" Put, you are like an insurance company that has issued a policy but has no backup. If a major disaster strikes, you are on the hook for everything. By adding a "Long Put," you are essentially buying Re-insurance.
Side-by-Side: Naked Put vs. Bull Put Spread
Feature | Naked Short Put | Bull Put Spread (The "Smart" Choice) |
Structure | Sell 1 Put | Sell 1 Put + Buy 1 Cheaper Put |
Income | Higher (You keep the full premium) | Slightly Lower (Premium minus cost of insurance) |
Max Risk | Extreme (Everything below your strike) | Capped & Defined (The "Gap" between your strikes) |
Margin | High (Platform holds a large amount of cash) | Lower (Risk is capped, so less capital is "at risk") |
Sleep Quality | Low (A 10% crash could wipe out your account) | High (You know your "Worst Case" to the cent) |
The "Safety Net" Explained
Imagine the US 500 is at 6,900. You sell the 6,700 Put.
The Danger: If the market crashes to 6,000, you are 700 points in the money. At $10/pt, you just lost $7,000.
The Solution: In a Bull Put Spread, you also buy the 6,600 Put. This acts as a "floor." Once the market hits 6,600, your losses stop completely, no matter how much further the market falls.
Premium: The downside is that you receive less premium in a bull put spread vs the short put.
ShareNavigator Pro Tip: If you are a novice trader and do not know how to roll out and down short put positions and/or risk averse, stick with the bull put spread.
Module 2: The Math & Expiry Scenarios
The Math of the Trade (US 500 Case Study)
Let's look at a real-world example on the US 500, currently trading at 6,962.
The Setup (14-Day Expiry):
Sell 6700 Put: Receive 12.23 points.
Buy 6600 Put: Pay 8.10 points.
Net Credit: 4.13 points (12.23 - 8.10).
At a $5 per point stake:
Max Profit (Instant Income): $20.65 (4.13 pts times $5).
Maximum Risk: $479.35 (100 pts spread width - 4.13 credit) times $5. Notice that your Max Profit ($20.65) + Max Risk ($479.35) = $500. This is exactly equal to your spread width (100 points) multiplied by your stake ($5).
The "What If?" Expiry Scenarios
Based on a $5 per point stake:
Scenario A: US 500 at 7100 (Bullish)
Spread Value: 0 points.
Result: +$20.65 (Max Profit).
Scenario B: US 500 at 6962 (Current Price/Flat)
Spread Value: 0 points.
Result: +$20.65 (Max Profit).
Scenario C: US 500 at 6700 (At the Strike)
Spread Value: 0 points.
Result: +$20.65 (Max Profit).
Scenario D: US 500 at 6695.87 (Breakeven)
Spread Value: 4.13 points.
Result: $0 (Even).
Scenario E: The "Grey Zone" (Between the Strikes)
The most common question from new traders is: "What happens if the US 500 drops below my Short Put, but doesn't reach my Long Put?" In our example, this is any price between 6,700 and 6,600. This is where your profit begins to "erode" and turn into a loss.
The Math of the Middle Ground
Let's imagine the US 500 finishes at 6,650.
The Short Put (6,700 Strike): The market is 50 points below your strike. You owe 50 points. At $5/pt, that is a $250 loss.
The Long Put (6,600 Strike): The market is still above your insurance strike. Your insurance is worthless. $0 gain.
The Premium: You still have the $20.65 credit you collected at the start.
Your Final Result:
-$250 (Short Leg Loss) + $20.65 (Initial Credit) = -$229.35 Total Loss
Why the "Grey Zone" matters
The Insurance Kick-In: Your insurance (the 6,600 Put) only starts "paying out" once the index drops below 6,600.
The Slide: Between 6,700 and 6,600, you are in a sliding scale. Every point the market drops further into this zone increases your loss by your stake size ($5).
The Floor: The good news? No matter how much further the market falls below 6,600, your loss will never exceed the Max Loss ($479.35) we calculated at the start.
💡 ShareNavigator Pro Tip: This is why we use the 1% Rule or a Stop Loss. If the market enters this "Grey Zone," we don't just hope for a recovery—we either Roll the trade to a later date or close it to prevent the loss from reaching the maximum.
Scenario F: US 500 at 6600 (Lower Strike/Crash)
Spread Value: 100 points.
Result: -$479.35 (Max Loss).
Module 3: Probability & Volatility (The VIX Filter)
Why the 80% Success Rate?
This is a "High Probability" trade because you have a massive Margin of Safety.
Buffer Zone: With the market at 6962 and your strike at 6700, the index can drop nearly 4% in 14 days, and you still keep 100% of your profit.
Delta as Probability: A 6700 strike typically has a Delta of ~0.20, meaning there is only a 20% chance the market hits that level. This gives you a mathematical 80% chance of success.
Navigating Without Greeks (The Workaround)
IG Index does not display Delta on their spread betting tickets. To ensure you are picking an 80% probability trade, use this workaround:
The External Compass: Maybe you have a traditional options account also with IBKR, or open a free tool like Yahoo Finance or the CBOE SPX Option Chain.
Match the Strike: Look for the Put option strike with a Delta of 0.15 to 0.20 on the external site.
Execution: Note that strike price (e.g., 6700) and return to your IG platform to place the spread bet on that specific level.
Module 4: Execution & The "Margin Lock"
Maximizing Capital Efficiency: Managing the "Margin Lock"
Since IG Index treats the two legs of your Bull Put Spread as separate bets, they will "lock up" a significant amount of margin for each leg. It is vital to understand that your margin requirement is not your actual risk. In our US 500 example, your actual risk is capped at $479.35, but IG might require $3,000+ in available margin just to open the position.
The "60% Rule" for Account Sizing
Because of this "Margin Lock," you must ensure your account is large enough to handle the platform's requirements without putting you in financial danger.
The Rule: Never let the Initial Margin for a Bull Put Spread exceed 60% of your total account value (30% on on leg and 30% on the other).
Why? If you have a $5,000 account and one trade locks up $4,000 (80%) in margin, you only have $2,000 left to handle market swings. If the market moves against you, IG may increase the margin requirement further, leading to an automatic "Margin Call" where they close your trade early.
How to Lower the Margin Requirement
Since narrowing the strike width doesn't lower the margin on IG, there is only one lever left to pull: Reducing your Stake Size.
If the margin is too high at $10 per point, drop it to $2 or $5 per point. * The Goal: It is always better to have a smaller trade that stays open than a larger trade that gets closed by the broker because you ran out of margin.
💡 ShareNavigator Pro Tip: Always check the "Margin Required" figure on the deal ticket before you hit place. If that number makes you feel uncomfortable, simply lower your "Size ($ per point)" until the margin fits safely within your 60% rule for both legs.
The 2-Step Execution Sequence
Step 1: Sell the "Income" (Short Put) First
Action: Select the higher strike price (e.g., 6,700) and click Sell.
Step 2: Buy the "Insurance" (Long Put) Second
Action: Select the lower strike price (e.g., 6,600) and click Buy.
Module 5: Trade Management & Closing the Position
A Bull Put Spread isn't always a "buy and hold until expiry" strategy. In fact, professional traders rarely wait for the finish line. Knowing how to exit—whether to lock in a win or stop a loss—is what separates a hobbyist from a pro.
How to "Take Profit" (Unwinding the Legs)
To close your Bull Put Spread, you simply perform the exact opposite of your entry. Think of it as "undoing" the knots you tied.
On your IG dashboard, you will see two separate positions. You must close them individually:
Buy to Close the Short Put: You buy back the 6,700 Put you sold.
Sell to Close the Long Put: You sell back the 6,600 Put you bought as insurance.
The 80% Success Checklist
Market Outlook: US 500 trending up or sideways.
Volatility (VIX): Best when VIX is high (above 20) as it inflates the credits you receive.
The Delta Rule: Short Put Delta is between 0.15 and 0.20 (via external compass).
Margin of Safety: Short strike is 3-5% away from the current price.
Days to Expiry (DTE): Up to 45 days (Max).
Strategy Comparison: Risk vs. Probability
Choosing the right strategy depends on your market view and your risk tolerance. At ShareNavigator, we emphasize Probability of Profit (PoP) over "lottery ticket" home runs.
Strategy | Market View | Max Profit | Max Risk | Probability of Profit | Best For... |
Aggressively Bullish | Unlimited | Premium Paid | ~30% - 40% | Fast-moving rallies. | |
Aggressively Bearish | Significant | Premium Paid | ~30% - 40% | Hedging a crash. | |
Neutral to Bullish | Net Credit | High | 75% - 85% | Consistent income. | |
Bull Put Spread | Neutral to Bullish | Net Credit | Capped | 70% - 85% | Consistent income. |
Neutral to Bearish | Net Credit | Capped | 70% - 85% | Selling "resistance." | |
Moderately Bullish | Capped | Net Debit | ~50% - 60% | Cheap bullish entry. | |
Moderately Bearish | Capped | Net Debit | ~50% - 60% | Cheap bearish entry. |
Why Credit Spreads Have a Higher Win Rate
A common question students ask is: "Why not just short the stock or buy a long put if I'm bearish?"
The answer lies in the three directions of the market:
Shorting a Stock / Long Put: You only win if the market moves DOWN. If the market stays flat or goes up, you lose. (1 out of 3 scenarios).
Bear Call Spread: You win if the market moves DOWN, stays FLAT, or even RISES SLIGHTLY (as long as it stays below your ceiling). (3 out of 3 scenarios).
By "selling" time and volatility instead of just betting on direction, you turn the math of the market in your favor.
💡 The ShareNavigator Golden Rule
"We don't try to predict the next 500-point move. We try to identify the 300-point range where the market won't go. Trading is not about being 'right'; it's about not being 'wrong' enough to lose money."
🛠 Practice Before You Play: The Demo Account
A Bull Put Spread involves "selling" an option, which can feel intimidating for beginners. On IG Index, because the two legs of your trade are placed separately, it is very easy to make a manual error—like clicking "Buy" when you meant "Sell," or entering the wrong stake size.
Why use an IG Demo Account?
Virtual Funds: You start with €10,000 in virtual capital to test your bearish theories.
Master the "Bummer": Use the demo to see exactly how much margin is tied up by your short leg and how it impacts your "Available to Trade" balance.
Zero Risk: Make your first 10-20 spread trades in a risk-free environment until the process of placing separate orders feels like second nature.
🚀 Open Your Demo Account
Don't risk your hard-earned capital while you are still learning the interface. Set up your practice environment in less than two minutes:
Open Demo Account: Click Here
Select "Spread Betting": Ensure you choose the Spread Betting demo to access
Place Your First Spread: Use our US 500 example
Course Challenge: Open a demo account today and place one Bull Put Spread on the S&P 500. Check back in 24 hours to see how the "Theta" (time decay) has affected the price of your spread!
'Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 68% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.'
Traditional Bull Put Strategy Course
To get a full understanding of bull put options, we recommend that you also get a full understanding of the traditional bull put strategy. Click Here to access the course.
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