What is a Bull Put Spread?
Sell to Open Higher-Strike Put
Generates premium and creates the main obligation.
Buy to Open Lower-Strike Put
Limits downside risk if the stock falls sharply.
Mental model: “Pay me premium because I believe the stock will stay above my short put strike.”
When to use it
| Situation | Fit? | Why |
|---|---|---|
| Expect the stock to rise modestly | Good fit | The spread keeps its premium if price stays above the short strike. |
| Expect the stock to stay flat but above support | Good fit | You do not need a large rally. |
| Want premium income with defined risk | Good fit | The long put limits maximum loss. |
| Expect a sharp selloff | Poor fit | A large decline can push the spread toward maximum loss. |
| Want unlimited upside profit | Not the goal | Maximum profit is limited to the credit received. |
Worked example
Assume a stock trades at $100 and you believe it will stay above $95 through expiration.
| Leg | Action | Strike | Premium |
|---|---|---|---|
| 1 | Sell to Open Put | $95 Put | Receive $3.00 = +$300 |
| 2 | Buy to Open Put | $90 Put | Pay $1.00 = -$100 |
Net Credit = $3.00 - $1.00 = $2.00/share = $200
Best case: the stock finishes at or above $95 at expiration and both puts expire worthless. You keep the full $200 credit.
Maximum profit, loss, and break-even
Maximum Profit = Net Credit = $200
Spread Width = $95 - $90 = $5
Maximum Loss = (Spread Width - Net Credit) × 100
Maximum Loss = ($5 - $2) × 100 = $300
Break-even = Short Put Strike - Net Credit
Break-even = $95 - $2 = $93
What happens at expiration?
| Stock Price | Approximate Outcome | Meaning |
|---|---|---|
| $105 | +$200 max profit | Both puts expire worthless. |
| $97 | +$200 max profit | Still above the short $95 put. |
| $95 | Near max profit | Short put is at the strike. |
| $93 | Break-even | The spread loss offsets the $2 credit. |
| $92 | About -$100 | The short put is in the money, but the long put still limits risk. |
| $90 or lower | -$300 max loss | The spread reaches its full $5 width. |
Why the long put matters
If you only sold the $95 put, you could face a large obligation if the stock collapsed. Buying the $90 put caps the spread's downside.
Defined-risk structure: the long put is the protective leg that limits the maximum loss.
Bull Put Spread vs. Cash-Secured Put
| Feature | Bull Put Spread | Cash-Secured Put |
|---|---|---|
| Main goal | Premium income with defined risk | Premium income + willingness to buy shares |
| Capital required | Usually lower | Much higher because cash is reserved for 100 shares |
| Maximum loss | Defined | Large if stock collapses |
| Can result in owning stock? | Not the primary goal | Yes, if assigned |
| Maximum profit | Net credit | Premium received |
Bull Put Spread vs. Bull Call Spread
| Feature | Bull Put Spread | Bull Call Spread |
|---|---|---|
| Opening cash flow | Credit received | Debit paid |
| Market view | Neutral to moderately bullish | Moderately bullish |
| Best outcome | Stock stays above short put | Stock rises toward/above short call |
| Time decay | Often helps | Can be mixed |
| Maximum loss | Defined | Defined |
How to choose strikes
| Choice | Typical Effect |
|---|---|
| Short put closer to current stock price | More credit, but less room for the stock to fall. |
| Short put farther below current price | Less credit, but a wider cushion. |
| Long put farther below short put | Wider spread, usually more risk and more buying power required. |
| Long put closer to short put | Narrower spread and lower maximum risk. |
Expiration considerations
| Expiration | Potential Advantage | Potential Drawback |
|---|---|---|
| Shorter-dated | Faster time decay | Less time to recover from a sudden decline. |
| Longer-dated | More time for the thesis to play out | Longer exposure to downside risk. |
Assignment risk
The short put can be assigned before expiration, especially if it becomes in the money. The long put remains part of the spread and can help manage the resulting risk, but assignment can create temporary stock and cash requirements depending on broker handling.
Important: do not assume the broker will always automatically manage the two legs exactly the way you expect. Understand your broker's spread, assignment, and expiration procedures.
Pros and cons
Pros
- Receive premium upfront.
- Defined maximum loss.
- Can profit even if the stock moves sideways.
- Usually requires less capital than a cash-secured put.
- Time decay often helps.
Cons
- Maximum profit is limited to the credit.
- A sharp decline can create maximum loss.
- Short-put assignment risk exists.
- Two legs add complexity.
- Profit can be small relative to risk if strikes are poorly chosen.
How to close it
A Bull Put Spread is usually opened for a credit and closed for a debit.
Open: receive a net credit.
Close: buy back the spread for a net debit.
Close: buy back the spread for a net debit.
Profit = Opening Credit - Closing Debit
Example: open for $2.00 and later close for $0.60.
Profit = ($2.00 - $0.60) × 100 = $140
Common mistakes
- Selling the short put too close to the current stock price just to collect more premium.
- Ignoring the maximum loss relative to the credit received.
- Using the strategy ahead of a major event without accounting for gap risk.
- Assuming the stock cannot fall through both strikes.
- Ignoring liquidity and bid/ask spreads.
- Holding into expiration without understanding assignment risk.
Beginner checklist
| Check | Question |
|---|---|
| ☐ Market view | Do I expect the stock to stay above my short strike? |
| ☐ Short put strike | Is this below a level I consider reasonable support? |
| ☐ Long put strike | Does it cap risk at an acceptable amount? |
| ☐ Net credit | Is the income worth the maximum loss? |
| ☐ Break-even | How much can the stock fall before I lose money? |
| ☐ Expiration | Does the time window fit my thesis? |
| ☐ Events | Are earnings or other major catalysts inside the trade window? |
| ☐ Liquidity | Are both option legs liquid? |
Key takeaway
Bull Put Spread = Sell Higher-Strike Put + Buy Lower-Strike Put
Use it when you are neutral to moderately bullish and want to collect premium while keeping downside risk defined.
The trade-off is simple: limited income in exchange for limited risk.