Bullish Patterns
Long Calls
Bull Call Spread
Bull Put Spread
Call Backspread
Long Call Ratio Spread
Naked Put
Synthetic Long Stock
The Collar
Covered Calls
Synthetic Long Call
Synthetic Short Put
Covered Straddle
Covered Strangle
Married Put
Protective Put

Bearish Patterns
Long Puts
Bear Put Spread
Bear Call Spread
Put Backspread
Long Put Ratio Spread
Naked Calls
Synthetic Short Stock
Synthetic Short Stock (split strikes)
Covered Put
Protective Call
Synthetic Short Call
Synthetic Long Put

Long Volatility
Long Straddle
Long Strangle
Short Call Butterfly
Short Put Butterfly
Short Iron Butterfly
Short Call Condor
Short Put Condor
Short Iron Condor
Long Guts
Short Call Ladder
Short Put Ladder
Long Call Synthetic Straddle
Long Put Synthetic Straddle

Short Volatility
Short Straddle
Short Strangle
Long Call Butterfly
Long Put Butterfly
Long Iron Butterfly
Long Call Condor
Long Put Condor
Long Iron Condor
Short Guts
Long Call Ladder
Long Put Ladder
Call Ratio Spread
Short Call Ratio Spread
Put Ratio Spread
Short Put Ratio Spread
Ratio Call Write
Ratio Put Write
Short Call Synthetic Straddle
Short Put Synthetic Straddle
Variable Ratio Write

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Bull Put Spread

Risk: low
Reward: low

General Description
Entering a bull put spread entails selling higher strike puts and buying an equal number of lower strike puts (same expiration month).

(draw a bull put spread risk diagram here)

The Thinking
You're bullish and are confident a stock will move up. So you sell a put (probably in-the-money) that will decline in value when the stock rallies (hopefully above the strike price). But if the stock were to drop, you could suffer a big loss, so you buy a lower strike put to protect yourself. This strategy may be preferable over a bull call spread because you are primarily an option seller and therefore benefit from time decay.

XYZ is at $52. You are bullish and think the stock can rally a few points but don't think it will surge higher. Instead of buying the stock outright, which is expensive, or employing a bull call spread, which has a net debit to initiate the trade and requires upside movement to profit, you employ a bull put spread, which benefits from time decay. You sell (1) 55 put for $4.50 and buy (1) 50 put for $1.00. The net credit is $3.50.

Above $55, all puts expire worthless, and your profit is the net credit collected when the trade was initiated.

If the stock trades flat and closes at $52, the 55 put will have decreased in value from $4.50 to $3.00 ($1.50 gain), and the 50 put will have decreased in value from $1.00 to being worthless ($1.00 loss) for a profit of $0.50. This is a benefit of being an option seller instead of a buyer. Even though the stock didn’t move, time decay enabled you to get out with a small profit instead of a loss.

At $50, the 55 put will have increased in value from $4.50 to $5.00 ($0.50 loss), and the 50 put will have decreased in value from $1.00 to being worthless ($1.00 loss) for a total loss of $1.50.

Below $50.00, the loss from the short put and gain from the long put will cancel each other out.

The PL chart below graphically show where this trade will be profitable and at a loss.