Options Education
Bull Put Spread
An income-generating bullish strategy. Sell a put and buy another put with a lower strike. You collect a credit and profit if the stock stays above the short put's strike. Risk and profit are defined.
Risk / Reward
Defined Risk, Defined Profit
Volatility View
Benefits from falling IV (Short Vega)
Time Decay View
Benefits from time decay (Long Theta)
A bull put spread sells a higher-strike put and buys a lower-strike put, same expiration, for a net credit. Think of it as selling insurance with a deductible: you collect premium upfront, and the long put caps how much you can lose. Unlike owning stock, you profit whether the stock rises, stays flat, or even drifts down slightly — as long as it stays above the short strike at expiration.
It's a favorite among income-focused and systematic premium sellers because it offers a defined-risk, high-probability-of-profit trade with meaningfully less capital than owning the stock outright.
Greeks Profile
Delta
Positive — benefits from upward movement, growing as price approaches the short strike.
Gamma
Negative while profitable — risk accelerates as price nears the short put strike.
Theta
Strongly positive — time decay works in your favor as expiration approaches.
Vega
Negative — benefits when implied volatility falls after the trade is opened.
Bull Put vs. Bear Call Spread
Both are credit spreads that profit from time decay — the choice usually comes down to mechanics, not just direction.
Bull Put Spread
- Strikes placed below the current price (OTM puts) — bullish to neutral outlook.
- Generally better liquidity (puts trade heavier), lower margin (cash-secured), and benefits from dividends.
Bear Call Spread
- Strikes placed above the current price (OTM calls) — bearish to neutral outlook.
- Higher early-assignment risk (especially near ex-dividend dates) and higher naked-call margin requirements.
The Playbook
The risk profile, then how to trade and manage it.
Risk Profile (Payoff Diagram)
How to Read
Legs are pre-filled with a real short put (~30 delta) and a further-OTM long put (~10 delta) from the current SPX chain. Change the expiration or either strike to see the payoff update live. Maximum profit is the net credit collected, occurring at or above the short put strike; maximum loss occurs at or below the long put strike.
How to Trade It
Strike Selection
- 16-delta method: sell the 16-delta put for roughly 84% probability of success (one standard deviation).
- 20-30 delta method: collect more premium at a still-solid 70-80% success rate.
- Target a credit of 20-40% of the strike width for a balanced risk/reward.
Entry Criteria
- IV rank above 30%, to ensure adequate premium.
- 30-45 DTE — the sweet spot for theta acceleration.
- Liquid underlyings, and avoid opening through an earnings date.
Step-by-Step
- Screen for high IV-rank underlyings (>30%).
- Pick an expiration 30-45 days out.
- Sell the put at a 16-20 delta strike.
- Buy a put 5-15 strikes lower.
- Target 20-40% of strike width as credit.
Manage the Position
Profit & Loss Rules
- Profit target: close at 50% of maximum profit.
- Loss limit: close at 200% of the credit received.
- Time stop: close by 7-10 DTE regardless of P&L, to avoid gamma risk.
Adjustments
- Roll down and out: if the stock moves against you, roll to lower strikes and a later expiration for additional credit.
- Convert to iron condor: add a bear call spread above the current price to collect additional premium.
Assignment
- Watch ITM short puts closely near ex-dividend dates.
- Roll before assignment if still bullish; accept assignment if comfortable owning the stock.
Breakeven
Worked Example
Sell the $100 put, buy the $95 put, collect $1.50 credit → max profit $150, max loss $350 (the $5 width minus the credit).
Risks & Common Mistakes
Position Sizing
- Risk 1-2% of the account per trade; diversify across underlyings and sectors rather than concentrating.
- Watch total portfolio delta exposure across multiple open spreads.
Risk Disclosure: Bull put spreads involve substantial risk. While risk is defined, losses can equal the maximum loss amount and may result in assignment of the underlying stock. This information is for educational purposes only and does not constitute investment advice. Please consult a qualified financial advisor before implementing any options strategy.