PREMIUMBull Put Spread
Overview:
The bull put spread is popular because it’s a low risk, low return strategy. The strategy is employed when a put is sold, and any lower strike put is bought. Both options expire in the same month. The investor in a bull put spread receives the generated premium upfront.
Main Uses:
- The primary reason an investor would use this strategy is if the investor is feeling bullish about the underlying stock. The investor is hoping for an upturn in the underlying stock.
- The second reason an investor would use this strategy is if they are neutral on a stock. If the put that is sold has a higher vega than the put that is bought, then the investor will make money at expiration as long as the stock has not gone lower. It does not need to rally, it just needs to not fall.
Profit / Loss Bull Put Spread:
The below is a profit / loss graph of a bull put spread using the OptionsHouse P&L calculator. The current stock price is $113.28. An in-the-money put was sold with a strike of $118. An in-the-money call with a strike price of $108 was bought. The break-even price of the spread is $113.44. If the stock price increases above $113.44, the investor will make money. However; if the stock price decreases below $113.44, the investor will lose money.
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