Bull Put Spread option trading strategy is used by a trader who is bullish in nature and expects the underlying asset to move in an upward trend in the near future. This strategy includes buying of an ‘Out of the Money’ Put Option and selling of ‘In the Money’ Put Option of the same underlying asset and the same expiration date. When you write a Put, you will receive prem ..
SHORT PUT Vs BULL PUT SPREAD - When & How to use ?
SHORT PUT
BULL PUT SPREAD
Market View
Bullish
Bullish
When to use?
This strategy works well when you're Bullish that the price of the underlying will not fall beyond a certain level.
Bull Put Spread strategy is used when you're of the view that the price of a particular underlying will rise, move sideways, or marginally fall.
Action
Sell Put Option
Buy OTM Put Option, Sell ITM Put Option
Breakeven Point
Strike Price - Premium
Strike price of short put - net premium paid
SHORT PUT Vs BULL PUT SPREAD - Risk & Reward
SHORT PUT
BULL PUT SPREAD
Maximum Profit Scenario
Premium received in your account when you sell the Put Option.
Max Profit = Net Premium Received
Maximum Loss Scenario
Unlimited (When the price of the underlying falls.)
Max Loss = (Strike Price Put 1 - Strike Price of Put 2) - Net Premium Received
Risk
Unlimited
Limited
Reward
Limited
Limited
SHORT PUT Vs BULL PUT SPREAD - Strategy Pros & Cons
SHORT PUT
BULL PUT SPREAD
Similar Strategies
Bull Put Spread, Short Starddle
Bull Call Spread, Bear Put Spread, Collar
Disadvantage
• Unlimited risk. • Huge losses if the price of the underlying stock falls steeply.
• Limited profit potential. • In loss situations, time decay may go against you.
Advantages
• Benefit from time decay. • Less capital required than buying the stock outright. • Profit when underlying stock price rise, move sideways or drop by a relatively small account.
• Benefit from the time decay in profit positions but harmful in loss positions. • Profitable when underlying stock price rises, move sideways or marginal drop. • Reduce the downside risk.
