The bull put spread is a popular income-generating options strategy that lets you profit from bullish or neutral price action while collecting premium upfront. As a credit spread, time decay works in your favor, making it a favorite among options sellers. This guide covers everything you need to trade bull put spreads successfully.
What is a Bull Put Spread?
A bull put spread is a vertical credit spread that involves selling a put option at a higher strike price and simultaneously buying a put option at a lower strike price. Both options have the same expiration date. Because the put you sell is worth more than the put you buy, you receive a net credit when entering the trade.
Key concept: The bull put spread profits when the underlying stock stays above the short put strike. You keep the entire credit received if both puts expire worthless. Time decay helps your position as expiration approaches.
How to Construct a Bull Put Spread
Setting up a bull put spread requires two simultaneous transactions:
- Sell to open: Sell a put at a higher strike price (typically out-of-the-money)
- Buy to open: Buy a put at a lower strike price (for protection)
- Both options must have the same expiration date
- You receive a net credit that is your maximum profit
Bull Put Spread Example
NVDA is trading at $480 and you are bullish, expecting it to stay above $450.
- Sell the $450 put for $8.50
- Buy the $440 put for $5.50
- Net credit: $3.00 ($300 per contract)
Max profit: $3.00 ($300) - the credit received
Max loss: $7.00 ($700) - width ($10) minus credit ($3)
Breakeven: $447 - short strike minus credit received
Profit and Loss Calculations
Understanding your risk and reward:
Maximum Profit
Maximum profit occurs when the stock closes at or above the short put strike at expiration. Both puts expire worthless, and you keep the entire credit:
- Max Profit = Net Credit Received
In our example, this is $3.00 per share or $300 per contract.
Maximum Loss
Maximum loss occurs when the stock closes at or below the long put strike at expiration:
- Max Loss = (Short Strike - Long Strike) - Net Credit Received
Using our example: ($450 - $440) - $3.00 = $7.00 per share or $700 per contract.
Breakeven Point
The breakeven is where you neither make nor lose money:
- Breakeven = Short Put Strike - Net Credit Received
In our example: $450 - $3.00 = $447. The stock can drop $33 from $480 before you start losing money.
When to Use a Bull Put Spread
Bull put spreads work best in these situations:
- Neutral to bullish outlook: You expect the stock to stay flat or rise
- High implied volatility: Elevated IV means higher premiums to collect
- Want income: You prefer collecting premium over paying for options
- Strong support levels: You can identify a price level the stock is unlikely to breach
- Avoiding directional bets: You do not need the stock to move up, just not crash
- After earnings: IV crush after events benefits credit sellers
Pro tip: Place your short strike at or below a strong support level. Technical analysis helps identify where buyers are likely to step in. The more confident you are in your support level, the closer you can sell to the current price for more premium.
Choosing Strike Prices
Strike selection determines your risk/reward profile:
Short Put Strike
- Close to ATM: Higher premium, higher risk, needs stock to stay put or rise
- Far OTM: Lower premium, lower risk, high probability of success
- At support level: Optimal balance of premium and protection
Spread Width
- Narrow ($2.50-5): Lower max loss, lower credit, higher probability
- Wide ($10-20): Higher max loss, higher credit, lower probability
Probability vs Premium Trade-off
Stock at $100, selling put spreads:
High probability ($90/$85 spread):
- Credit: $0.75
- Max loss: $4.25
- Probability of profit: ~75%
- Risk/reward: 5.7:1
Higher premium ($95/$90 spread):
- Credit: $1.50
- Max loss: $3.50
- Probability of profit: ~60%
- Risk/reward: 2.3:1
The closer spread collects more premium but has lower probability of keeping it all.
Greeks and the Bull Put Spread
How Greeks affect your credit spread position:
- Delta: Positive. You benefit when the stock rises or stays flat.
- Theta: Positive. Time decay is your friend - the spread loses value as expiration approaches, which is what you want.
- Vega: Negative. You benefit from declining implied volatility.
- Gamma: Negative near expiration. Fast moves against you hurt more as expiration nears.
Managing Your Bull Put Spread
Active management is crucial for credit spreads:
Taking Profits Early
A common practice is to close when you have captured 50-75% of maximum profit. If you received $3.00 credit and can close for $0.75, you keep $2.25 (75%) while eliminating further risk.
Cutting Losses
Consider closing if the loss reaches 100-200% of the credit received. If you received $3.00, close if you would have to pay $6-9 to close (losing $3-6).
Rolling the Position
If the stock drops toward your short strike, you can roll down and out:
- Close the current spread
- Open a new spread with lower strikes and later expiration
- Ideally collect additional credit to improve breakeven
When the Stock Rallies
If the stock moves significantly higher, the spread loses value quickly. This is good - consider closing early to lock in profits and free up capital.
Track Your Credit Spreads
Pro Trader Dashboard tracks your bull put spreads, monitors theta decay, and alerts you when profit targets are reached.
Bull Put Spread vs Bull Call Spread
Both are bullish, but key differences exist:
- Bull put spread (credit): Receive money upfront, profit from time decay, max profit if stock stays above short strike
- Bull call spread (debit): Pay to enter, need stock to move up, time works against you
Choose the bull put spread when you want income and believe the stock will not fall significantly. Choose the bull call spread when you have strong conviction the stock will rally.
Common Mistakes to Avoid
- Selling too close to the money: Higher premiums come with higher risk of loss
- Ignoring support levels: Technical analysis helps you place strikes at logical levels
- Too short expiration: While theta accelerates, there is less time to recover if wrong; 30-45 days is often optimal
- Overleveraging: Credit spreads can blow up quickly; never risk more than 2-5% of your account on one trade
- Holding through earnings: Stocks can gap below your strikes; close before events or accept the binary outcome
- No stop loss plan: Decide in advance when to cut losses
Ideal Market Conditions
Bull put spreads perform best when:
- Implied volatility is high (premiums are elevated)
- The stock is in an uptrend or consolidating above support
- Market sentiment is neutral to bullish
- You have identified clear support levels
- Earnings or major events have passed (IV has normalized)
Summary
The bull put spread is an excellent income strategy for traders who are neutral to bullish on a stock. By selling a put and buying a lower strike put for protection, you collect premium upfront and benefit from time decay. Your maximum profit is the credit received, while your maximum loss is limited to the spread width minus the credit. Focus on selling at or below support levels, take profits at 50-75% of maximum, and always have a plan for managing losing positions. This strategy shines in high IV environments and works best with 30-45 days to expiration.
Learn more: credit spreads, bear call spreads, and theta decay.