Glossary term
Bull Put Spread
A bull put spread is a defined-risk options strategy that sells a higher-strike put and buys a lower-strike put to express a bullish or neutral-to-bullish view.
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What Is a Bull Put Spread?
A bull put spread is a defined-risk options strategy that sells a higher-strike put and buys a lower-strike put with the same expiration. The position is usually opened for a net credit and is used when a trader expects the underlying asset to rise, stay above the short put strike, or at least not fall too far.
The strategy is bullish because it benefits when the underlying price stays above the higher strike. It is a spread because the long lower-strike put limits the downside from the short put. The tradeoff is that the maximum profit is capped at the net credit received.
Key Takeaways
- A bull put spread combines a short higher-strike put with a long lower-strike put.
- It is usually entered for a net credit.
- The maximum gain is the credit received, before commissions and fees.
- The maximum loss is the strike-width minus the credit, before costs.
- The strategy can lose money if the underlying falls below the short put strike and can reach maximum loss below the long put strike at expiration.
How the Strategy Works
Assume a stock trades at $50. A trader sells a $48 put and buys a $44 put with the same expiration. The short $48 put brings in premium because the trader is taking on the obligation to buy the stock at $48 if assigned. The long $44 put costs premium but limits the worst-case loss if the stock falls sharply.
If the stock stays above $48 through expiration, both puts may expire worthless and the trader keeps the net credit. If the stock falls below $48, the short put gains intrinsic value against the trader. Below $44, the long put offsets additional downside, so the loss is capped.
Payoff and Risk
Outcome at expiration | General result |
|---|---|
Underlying above short put strike | Maximum profit: net credit kept. |
Underlying between strikes | Partial profit or loss, depending on price and credit. |
Underlying below long put strike | Maximum loss: strike width minus net credit. |
The appeal is that risk is known in advance. Unlike selling a naked put, the purchased lower-strike put provides a floor on losses. That defined risk can make the strategy more manageable for traders who want premium income without unlimited downside exposure.
Why Traders Use It
A bull put spread can make sense when a trader is moderately bullish, expects support to hold, or believes implied volatility is high enough to make option premium attractive. It can also be used when the trader would not mind a limited-risk income position but does not want to buy the stock outright.
Because the position receives a credit upfront, time decay can help if the underlying price remains above the short strike and volatility does not move sharply against the position. The strategy does not need a large rally to work. Often, it only needs the underlying to stay above the selected level.
Assignment and Expiration Risk
The short put can be assigned, especially if it becomes in the money near expiration. Assignment means the trader may be required to buy the underlying at the short strike. The long put limits economic exposure, but traders still need to understand broker exercise rules, margin requirements, and expiration handling.
Holding spreads into expiration can create practical risk if the underlying closes near a strike or moves after hours. Traders should know whether they plan to close the spread, let it expire, or manage assignment if the short put is exercised.
Bull Put Spread Versus Bull Call Spread
A bull put spread is usually a credit spread. A bull call spread is usually a debit spread. Both are bullish and defined-risk, but they behave differently. The bull put spread often benefits from time decay when price stays above the short strike. The bull call spread needs the underlying to rise enough to make the long call spread valuable.
Neither is automatically better. The choice depends on implied volatility, strike selection, time to expiration, account permissions, and whether the trader prefers collecting premium or paying for upside exposure.
Investor Takeaway
A bull put spread is a limited-risk way to express a bullish or neutral-to-bullish view with options premium. Its strength is defined risk and upfront credit. Its weakness is capped reward, assignment complexity, and the possibility of losing money quickly if the underlying breaks below the selected support area.