Bull Put Spread

AAA

DEFINITION of 'Bull Put Spread'

A type of options strategy that is used when the investor expects a moderate rise in the price of the underlying asset. This strategy is constructed by purchasing one put option while simultaneously selling another put option with a higher strike price. The goal of this strategy is realized when the price of the underlying stays above the higher strike price, which causes the short option to expire worthless, resulting in the trader keeping the premium.

INVESTOPEDIA EXPLAINS 'Bull Put Spread'

This type of strategy (buying one option and selling another with a higher strike price) is known as a credit spread because the amount received by selling the put option with a higher strike is more than enough to cover the cost of purchasing the put with the lower strike. The maximum possible profit using this strategy is equal to the difference between the amount received from the short put and the amount used to pay for the long put. The maximum loss a trader can incur when using this strategy is equal to the difference between the strike prices and the net credit received. Bull put spreads can be created with in-the-money or out-of-the-money put options, all with the same expiration date.

RELATED TERMS
  1. Modidor

    An options strategy that consists of buying and selling out-of-the-money ...
  2. Put Option

    An option contract giving the owner the right, but not the obligation, ...
  3. Credit Spread

    1. The spread between Treasury securities and non-Treasury securities ...
  4. Out Of The Money - OTM

    A call option with a strike price that is higher than the market ...
  5. Long (or Long Position)

    1. The buying of a security such as a stock, commodity or currency, ...
  6. In The Money

    1. For a call option, when the option's strike price is below ...
RELATED FAQS
  1. Can I make money using put options when prices are going up?

    It seems counterintuitive that you would be able to profit from an increase in the price of an underlying asset by using ... Read Full Answer >>
Related Articles
  1. Options & Futures

    How To Manage Bull Put Option Spreads

    Learn how to halt options losses when the market moves quickly in an unfavorable direction.
  2. Active Trading

    S&P 500 Options On Futures: Profiting From Time-Value Decay

    Writing bull put credit spreads are not only limited in risk, but can profit from a wider range of market directions.
  3. Options & Futures

    Trading The QQQQ With In-The-Money Put Spreads

    Even beginners may use this strategy to trade a bullish outlook.
  4. Options & Futures

    Options Trading: The Modidor Spread

    Use this modification of an iron condor to reduce risk and increase your chance at profiting on the trade.
  5. Options & Futures

    Option Spread Strategies

    Learn why option spreads offer trading opportunities with limited risk and greater versatility.
  6. Options & Futures

    Examples Of Exchange-Traded Derivatives

    We look at some of the most common exchange-traded derivatives.
  7. Options & Futures

    Advantages Of Trading Futures Over Stocks

    We look at the top eight advantages of trading futures over stocks.
  8. Options & Futures

    Trading Volatility? Don’t Trade Stocks, Trade Options

    During times of volatility, traders can benefit greatly from trading options rather than stocks. We explain why.
  9. Options & Futures

    Top Brokers Offering Tools For Covered Calls

    Here are the brokers that offer the best tools for investors and traders to write covered calls and covered puts.
  10. Economics

    Effects of OIS Discounting for Derivative Traders

    The use of OIS discounting has important implications for derivative valuations and could positively or negatively impact a trader's profit or loss.

You May Also Like

Hot Definitions
  1. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  2. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  3. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  4. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  5. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
  6. Accrued Interest

    1. A term used to describe an accrual accounting method when interest that is either payable or receivable has been recognized, ...
Trading Center