Bull Put Spread
The Bull Put Spread is a low risk options trading strategy that can be used when your analysis indicates that the price of a stock, ETF, index, or commodity futures contract has strong probability of going higher.
This option strategy is a credit spread where you buy an OTM (lower strike price) Put and sell an ATM (higher strike price) Put with 30 to 90 days until expiration.
A major benefit to this credit spread is that you keep the credit if the options expire worthless. No need to pay a commission or the bid/ask spread to exit this trade under this scenario.
Entry Rules
Bullish expectations for the underlying asset. Receive a net credit of at least $2 for a $5 spread, and $5 for a $10 spread, after commissions.
Exit Rule Insights
- Cut your losses short. Buy back the position anytime the price of the spread reaches 150% of what you sold it for.
- Buy back position for a profit if you can get it at 20 - 25% of sales price and there are 30 days or more until expiration.
- Let the options expire worthless to keep all of the credit you collected on this profitable trade.
- Evaluate position at 80-100% profit.
If you are still Bullish, buy back 50% of position to take your money off the table.
Buy back the remaining position if it moves back to your original selling price. This leaves you with a 50% profit on the entire trade.
Otherwise, let your remaining options expire worthless to keep all or part of the remaining credit you collected.
Maximum Risk – Limited to difference in strike prices – net credit received
Maximum Profit – Limited to net credit received
Breakeven – Higher Put strike price – net credit received
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