Payoff Diagram

Description

The bull put spread option trading strategy is employed when the options trader thinks that the price of the underlying asset will go up moderately in the near term. The bull put spread options strategy is also known as the bull put credit spread as a credit is received upon entering the trade.

Steps Involved

An options trader believes that XYZ stock trading at $43 is going to rally soon and enters a bull put spread by buying a JUL 40 put for $100 and writing a JUL 45 put for $300. Thus, the trader receives a net credit of $200 when entering the spread position.

Rationale

Bull put spreads can be implemented by selling a higher striking in-the-money put option and buying a lower striking out-of-the-money put option on the same underlying stock with the same expiration date.

Bull Put Spread Tutorials

This webinar by Stuart McClure from Minc Trading, analyses three different strategies.

The Credit Put Spread - A bullish speculative strategy used to cap the risks of selling naked puts whilst recieving a premium for the risk associated.

The Credit Call Spread - A bearish speculative options strategy that profits when stocks remain at or below a specified level.

The Iron Condor - An options strategy created when the Credit Call and Credit Put spread strategies are combined.