Bull Put Spread
Description
The Bull Put spread is an intermediate strategy that can be profitable for stocks that
are either rangebound or rising. The concept is to protect the downside of a Naked Put
by buying a lower strike put to insure the one you sold. Both put strikes should be
lower than the current stock price so as to ensure a profit even if the stock doesnt
move at all.The lower strike put that you buy is further OTM than the higher strike put
that you sell. Therefore you receive a net credit because you buy a cheaper option than
the one you sell, thereby highlighting that options are cheaper the further OTM you go.
If the stock rises, both puts will expire worthless, and you simply retain the net credit.
If the stock falls, then your breakeven is the higher strike less the net credit you
receive. Provided the stock remains above that level, then you will make a profit.
Otherwise you could make a loss. Your maximum loss is the difference in strikes less
the net credit received.
P/L Profile
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