Bullish options strategy
Bull put spread
Sell a put and buy a lower put. You collect a credit and keep it if the stock stays above the short strike.
BullishHigh IV (selling rich premium)Defined riskLevel 4 · Selling premium
Bull put spread payoff
An example on a $100 stock with 30% implied volatility. The dashed line is the profit or loss at expiry; the solid line is what the position is worth today.
The trade
Sell 1 $96 put · 45 days · $2.25
Buy 1 $91 put · 45 days · $0.93
Net credit $132
Max profit$132
Max loss−$368
Break-even$94.68
Chance of profit70%
How it works
- Most you can make: the credit received.
- Most you can lose: width between strikes minus the credit. That amount is held as collateral.
- Time decay works for you: every day that passes with the stock above the short put helps.
When to use it
- You are neutral to bullish and implied volatility is high.
- You want the income of a short put with a fixed, smaller worst case.
Managing the trade
- Common rules: sell around the 0.30 delta, 30-45 days out; close at 50% of max profit; reconsider at 21 days to expiry.
- Aim to collect around a third of the spread's width.
Risks
- A sharp drop through both strikes means the max loss, which is usually larger than the max profit.