Bull Put Spread — Collect a credit while price stays above your short strike

What is a bull put spread?

A bull put spread sells a put and buys a second put at a lower strike in the same expiration. You collect a net credit, and that credit is the entire profit. The long put caps the loss at the width between the strikes less the credit — turning an open-ended obligation into a defined-risk position you can size precisely.

Key takeaways

• The net credit received is the maximum profit and is fixed from the moment you open.

• The maximum loss is the spread width less the credit, and it is known in advance.

• The break-even sits at the short strike less the credit received.

• Every outcome above the short strike is identical: the full credit, and nothing more.

The question to answer before you open the trade: Do you want a credit against an obligation - or would you rather pay a debit?

A simple mental model: you give a promise to buy, then insure it

Your neighbour is thinking about getting rid of his second-hand pressure washer. Right now the machine is worth about 100 €. You tell him: if he wants it off his hands by Friday, you will take it for 95 €. He pays you 1.50 € for that promise, straight away. Because the promise makes you uneasy, you walk it down the street to the second-hand dealer and hand over part of your 1.50 € so that he, in turn, will take the machine off you for 90 € if it comes to that.

Here is how Friday looks:

• The machine is still worth 95 € or more, so nothing happens. The 1.50 € stays with you.
• It is worth 93.50 €. You pay 95 € for it, and the 1.50 € you were paid closes the gap exactly. You are flat.
• It is worth 40 €. You still pay 95 € — but the dealer takes it off you at 90 €. The day cannot cost you more than 3.50 €.

That third line is the whole spread: the dealer's promise costs you part of your income and fixes how bad the worst day can get. The two are the same decision.

Where the picture ends: the dealer only steps in at 90 €. Every euro between 95 € and 90 € is yours to carry — that is precisely the stretch that hurts. And unlike the neighbour's machine, your two promises carry a price on every single day, so you can unwind the pair before Friday. Your neighbour, meanwhile, is free to knock on your door early.

How does a bull put spread work?

You get paid by time decay. Both legs lose time value as expiration approaches, but the short put you sold has more of it than the long put you bought, so the spread as a whole decays in your favour while price stays above the short strike.

The secondary driver is direction, in a limited sense. You need the stock to stay above the short strike; you gain nothing extra from it going much higher. That asymmetry is the whole trade: a high probability of a small, capped gain.

What works against you is movement downward. Between the two strikes your profit erodes steadily; below the long strike it stops eroding, because the long put has taken over. There is no scenario worse than the spread width less the credit.

If you remember one thing: you are selling a probability, not a view. The credit is the market's price for the chance that price ends below your short strike.

How is a bull put spread constructed?

1. -1 Put @K_high
2. +1 Put @K_low

Both legs share the same expiration — that is what makes this a vertical spread rather than a calendar. The long put is not there to make money; it is there to end the position's exposure at a known point.

Worked example

An example stock trades at 100 €. You sell the 95 € put and buy the 90 € put, collecting a net credit of 1.50 € per share, so 150 € for the contract — net credit means what the sold put pays you less what the bought put costs you. It lands in your account at entry and it is the whole of your possible profit. The spread is 5 € wide.

Maximum profit: 1.50 € per share, or 150 € per contract — the credit. You reach it whenever the stock finishes at or above 95 € and both puts expire worthless.

Maximum loss: −3.50 € per share, or −350 € per contract — the 5 € width less the 1.50 € credit. You reach it whenever the stock finishes at or below 90 €, where both puts are in the money and the spread is worth its full width.

Break-even: 93.50 € — the short strike less the credit.

Notice the shape of the bet: you risk 350 € to make 150 €. That is only sensible if the probability of finishing above 93.50 € is meaningfully better than the roughly 2.3-to-1 the payoff implies. The credit is the market's estimate of that probability, and the market is not generally wrong by a wide margin.

• Run your own numbers: Credit Spread Calculator →
• Run your own numbers: Probability Of Profit Calculator →
• Run your own numbers: Iv Percentile Calculator →

When is a bull put spread worth it?

Market phases it suits

• Sideways
• Moderate uptrend

Goal

• Income

A bull put spread belongs in sideways markets and quiet upward drifts, and it wants medium to high implied volatility — high IV inflates the credit relative to the same distance from the money, which is exactly the trade-off you are looking for.

Its purpose is income. Unlike a cash-secured put it has no interest in acquiring the stock: assignment is a complication to be managed, not an outcome to be welcomed.

Management

The 21-day rule matters more here than on a single-leg trade. In the final weeks gamma rises sharply on the short leg, which means small moves in the underlying start producing large swings in the spread's value. Closing at 50 % of the credit gives up some theoretical profit in exchange for stepping out before that acceleration.

Assignment and capital

Assignment risk

medium on the short put

Capital required

medium (spread width minus the credit received, held as margin)

Typical expiration

30-45

Typical delta

Short 0.15-0.30

The assignment risk is medium and concentrated in the short put. Early assignment leaves you long 100 shares plus a long put — a synthetic long call, which is not a disaster, but it does require the account to carry the shares until you unwind it.

The capital requirement is medium and, crucially, known: the width less the credit is held as margin. That is the number to size against, and it is far smaller than the cash a comparable cash-secured put would need.

What is the real return on a bull put spread?

Divide the credit by the capital at risk, not by some notional. Collecting 150 € against 350 € of committed margin is a 43 % return on risk for the holding period — a genuinely large number, which is exactly why the probability of losing has to be small for the trade to work.

The comparison worth making is against the cash-secured put at the same short strike. The spread gives up premium and gives up the chance to own the stock, and in return frees up most of the capital. Whether that is a good trade depends entirely on what else you would do with the cash.

What a bull put spread does not mean

• Defined risk does not mean small risk. The maximum loss of 350 € is more than twice the maximum gain of 150 €. "Defined" only means you know the number in advance; it says nothing about the number being small.
• The long put is not protection from the first euro. It engages at 90 €. Between 95 € and 90 € you carry exactly what a naked short put would have handed you.
• A high hit rate is not a result. Winning 150 € four times and losing 350 € once leaves almost nothing before costs. The hit rate only means something alongside the ratio.
• "Bullish" here does not mean "I believe in this stock". The trade also wins if price goes nowhere or drifts slightly lower. You are not paid for being right about direction, only for a level not being broken.
• Assignment is not a disaster, but it is not the plan either. Unlike a cash-secured put, you did not want the shares — and they tie up capital overnight that you had better have budgeted for.

Which mistakes cost money on a bull put spread?

Read as a "smaller cash-secured put". The long put only starts protecting at the lower strike. Between the two strikes you are carrying the same directional pain as a naked short put, just with a floor underneath it.

No exit left on a gap through both strikes. An overnight gap below the long strike puts you at maximum loss with nothing left to manage. Position size is the only defence against that, because there is no adjustment available after the fact.

Spreads too narrow on a wide bid-ask. On thin options chains the slippage of getting into and out of two legs can consume a meaningful share of a 1.50 € credit. Work with realistic fills, not the mid-price.

Feynman check: explain a bull put spread without jargon

Explain to someone in two or three sentences what you have just been paid for. Do it without the words "credit", "strike", "theta" and "assignment".

Your explanation is complete when it contains four things:

1. What did you promise someone, and what were you paid for it on the spot?
2. What did you immediately spend part of that money on?
3. Up to which price does the plan work — and below which price is your worst case already fixed?
4. What happens on the stretch in between?

One possible explanation: "For an immediate payment, I promised someone I would buy the stock from them at 95 € up to a set date. I spent part of that payment on a second promise, from someone else, to take the stock off me below 90 €. If the price stays above 93.50 €, I keep money. If it falls under 90 €, I lose 350 € — and no more than that."

If your explanation says the loss is "covered by the put I bought", that is where the gap is. Go back to the worked example: what is covered starts below 90 €. The five euros before that are entirely on your own account.

Five questions before you enter

1. Does my short strike sit outside the move the market has priced for this expiration?
2. Can the account absorb the 350 € maximum loss per contract — and how many times in a row?
3. What do I do if the stock gaps below both strikes overnight?
4. Does a scheduled catalyst — earnings, an ex-dividend date — fall inside the life of the trade?
5. At what fraction of the credit, and at what days to expiration, do I close regardless of how the trade looks?

Bull Put Spread or Bear Call Spread: what is the difference?

This data-driven table lays out the differences that actually matter between Bull Put Spread and Bear Call Spread.

Bull Put Spread compared with Bear Call Spread

Criterion	Bull Put Spread	Bear Call Spread
Market phase	Range-bound, no trend, price oscillating between levels or Basing out, or a quiet upward drift	Range-bound, no trend, price oscillating between levels, Topping out, or a quiet downward drift or Clear downtrend or an outright crash
What pays you	Time decay	Time decay
Risk defined	Yes	Yes
Max profit	the credit received	the credit received
Max loss	the spread width minus the credit received	the spread width minus the credit received
Capital required	medium (spread width minus the credit received, held as margin)	medium (spread width minus the credit received, held as margin)
Approval level	3	3

In short: Bull Put Spread fits when the market phase is Range-bound, no trend, price oscillating between levels or Basing out, or a quiet upward drift and the goal is Income; Bear Call Spread fits when the market phase is Range-bound, no trend, price oscillating between levels, Topping out, or a quiet downward drift or Clear downtrend or an outright crash and the goal is Income.

Related strategies

These strategies solve a similar problem — the counter position is the inverse.

Cash-Secured Put→

Bullish / neutral · Single leg

After a 30% drop, would the strike still be a price you actually want to pay?

Short Iron Condor→

Neutral · Range

Is the range you expect genuinely narrower than the move the market has priced in?

Counter position: Bear Put Spread→

Bearish · Vertical

Is the lower strike a realistic downside target inside this expiration?

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