Bullish

Bull Put Spread

Q: What is the advantage over selling a naked put?

Defined risk. The purchased put puts a floor under the loss, which is capped at the spread width minus the credit. In exchange you collect less premium and need far less margin, which usually improves return on capital committed.

Q: What is the probability of success?

Roughly one minus the delta of the short strike. With a put sold at delta 0.30, the probability it expires out of the money is around 70%. It is a good enough approximation for sizing, though it does not replace calculating mathematical expectancy.

Q: When should I open it?

With IV Rank at or above 50, 30 to 45 days to expiration, and a bullish or at least neutral thesis. Selling premium with depressed implied volatility is the most common error: you collect little and take the same risk.

Q: How do I manage it if price falls toward the short strike?

There are three paths. Close when the loss reaches two to three times the credit collected, which is the most common rule. Roll to a later expiration for additional credit if the thesis still holds. Or let it run to maximum loss, which was defined from the outset and is sometimes the right call if the size was appropriate.

Selling an ITM put and buying an OTM put to generate bullish credit with defined risk.

Max GainNet Credit Received

Max LossCapped (Strike Width − Credit)

Break-evenShort Strike − Net Credit

TypeCredit

Ideal IV environmentHigh IV (IV Rank ≥ 50) — you collect rich premium and profit from volatility compression

Profit / Loss Diagram

Bull Put Spread at expiration

What is this strategy?

The Bull Put Spread is a bullish credit strategy that sells a put closer to the money while buying protection with a put at a lower strike. Also known as a Short Put Spread, it generates immediate income through the net premium received. It is one of the most popular income-generating structures, combining bullish exposure with defined risk.

Unlike a naked Short Put, the Bull Put Spread completely caps your downside risk through the protective put. If price falls sharply, your maximum loss is limited to the strike width minus the credit received. Your maximum gain is the net credit, realised in full if price closes above the short strike at expiration.

The Bull Put Spread suits bullish or neutral traders seeking recurring income without unlimited risk. It benefits from the passage of time (positive theta) and from falling volatility (negative vega). It is particularly effective in sideways or modestly rising markets. Breakeven is calculated by subtracting the net credit from the short strike.

Construction

Action	Instrument	Strike	Expiration	Example
SELL	1 Put	ATM or slightly ITM	30-60 DTE	-1 AAPL Jun 175 Put @ $8.00
BUY	1 Put	OTM (5-10% below)	Same Expiration	+1 AAPL Jun 165 Put @ $3.00

Example

Scenario: AAPL trades at $173. You are bullish and believe it will not fall below $165 within two months.

Short Put Sold -1 AAPL Jun 165 Put @ $3.00
Long Put Purchased +1 AAPL Jun 175 Put @ $8.00
Net Credit +$500 (8.00 − 3.00 = 5.00 × 100)
Maximum Gain $500 (net credit received)
Maximum Loss $500 (175−165 strike width − $500 credit)
Breakeven $170.00 (175 short strike − 5 net credit)
Profit if AAPL = $180 $500 maximum (any close above the short strike)

The Greeks

δDelta — Moderately Positive

The short put carries positive delta, the long put negative. Net is positive but limited — typically +0.30 to +0.50.

θTheta — Positive

Your definitive ally. Both legs lose value over time, but the short one decays faster. You gain with every day that passes.

νVega — Moderately Negative

The short put carries larger negative vega, the long put smaller positive vega. Net is negative: rising volatility hurts the position.

γGamma — Moderately Negative

Both legs carry gamma, but the short leg’s negative gamma dominates. Net negative gamma hurts you on large price moves.

Position Management

01
Close at 50% of Maximum Profit Do not wait for expiration. Once you have captured 50% of the credit ($250 of $500), close both legs and redeploy. It is far more capital-efficient.
02
Set an Aggressive Stop Loss If you lose 25–50% more than your maximum credit, close the position. Taking a small loss beats waiting for a catastrophic assignment.
03
Be Flexible With Rolls If price approaches the short strike before expiration, close the current position and roll to lower strikes and a later expiration to extend the trade.
04
Prepare for Potential Assignment If you hold to expiration in the money, you will buy 100 shares. Make sure you have the capital or a plan: sell calls, hold, or exit immediately?
05
Monitor Implied Volatility Your enemy. If volatility rises, the position becomes less profitable. If IV falls, close early to capture the gain. Avoid opening spreads at very low IV.

Frequently Asked Questions

What is the advantage over selling a naked put?

Defined risk. The purchased put puts a floor under the loss, which is capped at the spread width minus the credit. In exchange you collect less premium and need far less margin, which usually improves return on capital committed.

What is the probability of success?

Roughly one minus the delta of the short strike. With a put sold at delta 0.30, the probability it expires out of the money is around 70%. It is a good enough approximation for sizing, though it does not replace calculating mathematical expectancy.

When should I open it?

With IV Rank at or above 50, 30 to 45 days to expiration, and a bullish or at least neutral thesis. Selling premium with depressed implied volatility is the most common error: you collect little and take the same risk.

How do I manage it if price falls toward the short strike?

There are three paths. Close when the loss reaches two to three times the credit collected, which is the most common rule. Roll to a later expiration for additional credit if the thesis still holds. Or let it run to maximum loss, which was defined from the outset and is sometimes the right call if the size was appropriate.

Profit / Loss Diagram

What is this strategy?

Construction

Example

The Greeks

Position Management

Frequently Asked Questions

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