Bull Put Spread (Credit)

A bull put spread sells a put at a higher strike and buys a put at a lower strike, same expiration. You collect net credit. It profits when the stock stays above the short put strike at expiration (or rises). Max profit is the credit; max loss is width minus credit.

It is a popular way to express "I am bullish or neutral and willing to own stock lower, but I prefer premium income with a cap on put-side loss." Many cash-secured put sellers use bull put spreads instead when they want a hard floor on put-side loss without tying up full stock capital.

Liquidity and execution

The short put strike is where assignment risk lives. Choose strikes you would tolerate owning on assignment. In fast selloffs, buy-to-close the spread may cost more than theoretical max loss intraday due to slippage on the long wing.

Structure

Leg	Action	Role
Higher strike (K2)	Sell put	Collect credit, assignment risk if ITM
Lower strike (K1)	Buy put	Floors loss below K1

• Entry: Net credit.
• Max profit: Credit × 100 (stock ≥ K2 at expiry).
• Max loss: (K2 − K1 − credit) × 100.
• Breakeven at expiry: K2 − credit per share.

Sell $95 put, buy $90 put, credit $1.20: width $5, max loss $3.80 per share ($380), breakeven $93.80.

Worked example

Stock at $100.

1. Sell the $95 put for $2.50.
2. Buy the $90 put for $1.30.
3. Net credit = $1.20 ($120 per contract).

If stock finishes at $97, both puts expire OTM. You keep $120. If stock finishes at $88, spread intrinsic is $7 ($95 − $88 on the short side, offset by long $90 put). Loss ≈ $7 − $1.20 credit = $5.80 per share, capped at width minus credit ($3.80) when fully below K1.

Payoff at expiration

Stock at expiry	P/L per contract (approx.)
$100	+$120 (max profit)
$95	+$120 (max profit)
$93.80	$0 (breakeven)
$88	−$380 (max loss)

Greeks for this position

Net delta is positive (bullish bias). You want the stock up or flat. The long lower put subtracts some negative delta from the short put.

• Theta: Generally positive. Front-month decay helps the seller if price holds above the short strike. Theta explained covers why time is a tailwind for net short premium.
• Vega: Negative. IV expansion hurts credit spreads.
• Gamma: Negative near the short put as expiry nears. Sharp selloffs accelerate losses.

When traders consider it

View	Bull put spread vs alternatives
Bullish, okay owning lower	Compare cash-secured put (single leg, more capital)
Bearish	Use bear put spread instead
Tighter range, both sides	Iron condor adds a call credit wing

Risks and management

• Assignment: Short put may be assigned before expiry. You may buy stock at K2 while still holding the long put.
• Margin: Reg T and broker rules often hold max loss as buying power reduction.
• Gap risk: Earnings or macro gaps through the short strike can produce fast marks against you.
• Dividends: Less common on puts than calls, but know ex-dates if assigned into stock.

Close early if credit decays to a target (e.g. 50%) or if the thesis fails.

Order entry and assignment

Credit put spreads are often opened as one order. If assigned on the short put, you may buy stock at the short strike while the long put protects below the long strike. Some traders roll the short put out rather than take stock. Know your broker's automatic exercise rules for long puts.

Sizing

Max loss = wing width minus credit. A $5 spread for $1.20 credit risks $380 per contract. Compare to a cash-secured put at the same short strike: the spread caps downside but also caps the "effective discount" if assigned.

Common mistakes

• Selling puts too aggressive relative to where you want to own shares.
• Ignoring earnings and macro gaps on single names.
• Closing winners too late after a reversal (gamma near short strike).
• Using tiny credits that do not cover round-trip fees.

Closing vs holding to expiration

Bull put spreads are classic "take half and move on" trades for many retail accounts. Full expiration with spot above the short put keeps max credit but ties up margin until the last day. Early close frees buying power and removes gap risk into events. If assigned on the short put, you may own stock above your effective purchase price (strike minus total credit); have a plan for shares you did not want long term.

Mark-to-market before expiration

While spot stays above the short put, theta and falling IV often lift mark-to-market P/L. A selloff toward the short put increases assignment risk and negative gamma. The long put begins to offset losses below the lower strike, but mark-to-market pain can appear before that hedge matters visually on your account.

Treat open profit as reversible until you close or expire. Gap risk on earnings can jump through the short strike overnight.

Tax and reporting (high level)

Assignment into stock starts a new holding period for shares. Premium from the spread may affect basis. Rules differ for qualified accounts. Not tax advice.

Practice without capital

Model the same strikes in ThetaViz for a week without trading. Watch how theta and delta change when spot drifts toward your short put. Save the setup to track marks: Saved strategies and P/L.

Related guides

Compare cash-secured put capital use, credit vs debit spreads, and iron condor if you want two-sided range income. Assignment and exercise matters when shorts go ITM.

Try in ThetaViz

Open bull put spread builder to set strikes, see max loss on the chart, and compare with a cash-secured put template.

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ThetaViz provides educational tools only. This guide is not investment, tax, or legal advice. Prices, margin requirements, and tax rules change. Confirm details with your broker and qualified professionals before trading.