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
When a trader is moderately bearish on the market he can implement this strategy. Bear-Put-Spread involves buying of ITM Put Option and selling of an OTM Put Option. If prices fall, the ITM Put option starts making profits and the OTM Put option also adds to profit at a certain extent if the expiry price stays above the OTM strike. However, if it falls below the OTM ..
BULL PUT SPREAD Vs BEAR PUT SPREAD - When & How to use ?
BULL PUT SPREAD
BEAR PUT SPREAD
Market View
Bullish
Bearish
When to use?
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.
The bear call spread options strategy is used when you are bearish in market view. The strategy minimizes your risk in the event of prime movements going against your expectations.
Action
Buy OTM Put Option, Sell ITM Put Option
Buy ITM Put Option, Sell OTM Put Option
Breakeven Point
Strike price of short put - net premium paid
Strike Price of Long Put - Net Premium
BULL PUT SPREAD Vs BEAR PUT SPREAD - Risk & Reward
BULL PUT SPREAD
BEAR PUT SPREAD
Maximum Profit Scenario
Max Profit = Net Premium Received
Max Profit = Strike Price of Long Put - Strike Price of Short Put - Net Premium Paid.
Maximum Loss Scenario
Max Loss = (Strike Price Put 1 - Strike Price of Put 2) - Net Premium Received
Max Loss = Net Premium Paid.
Risk
Limited
Limited
Reward
Limited
Limited
BULL PUT SPREAD Vs BEAR PUT SPREAD - Strategy Pros & Cons
BULL PUT SPREAD
BEAR PUT SPREAD
Similar Strategies
Bull Call Spread, Bear Put Spread, Collar
Bear Call Spread, Bull Call Spread
Disadvantage
• Limited profit potential. • In loss situations, time decay may go against you.
• Limited profit. • Early assignment risk.
Advantages
• 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.
• If the strike price, expiration date or underlying stocks are rightly chosen then risk of losses would be limited to the net premium paid. • This strategy works well in declining markets. • Limited risk.
