A bull put spread is a credit spread that sells a put option at a higher strike price and simultaneously buys a put option at a lower strike price on the same underlying stock or ETF, with the same expiration date.

The sold put is the income-generating leg. It works exactly as a cash-secured put does: the seller benefits if the stock stays above the strike at expiration. The bought put at the lower strike is the protection leg. It caps the maximum loss at the spread width minus the credit received, regardless of how far the stock falls.

The net result is a credit received upfront. That credit is the maximum possible gain. The spread width minus the credit is the maximum possible loss. Both figures are fixed at the moment the trade is placed.

A concrete example makes the mechanics precise.

A stock is trading at $85. You sell the $80 put and buy the $75 put, both expiring in 35 days. The $80 put trades at a bid of $1.40 and the $75 put trades at an ask of $0.70. The net credit is $0.70 per share, or $70 per contract.

Maximum gain: $70 per contract. This is the full credit received if both puts expire worthless, which happens when the stock closes above $80 at expiration.

Maximum loss: $430 per contract. The spread is $5 wide. $5.00 minus $0.70 equals $4.30, or $430 per contract. This is the maximum loss if the stock closes at or below $75 at expiration.

Breakeven: $79.30. The short put strike minus the credit received. Above $79.30 at expiration, the position is profitable. Below it, losses accumulate up to the maximum.

Capital required: $430 per contract. This is the maximum possible loss and the collateral required by the broker.

Strike selection for a bull put spread involves two related decisions: the short strike and the spread width.

The short strike uses the same delta-based framework as the cash-secured put. Most income-focused bull put spread sellers target short strikes in the 0.20 to 0.30 delta range. A short put at 0.25 delta implies approximately a 75 percent probability that the stock will stay above the short strike at expiration. Check IVR before entry: elevated IVR means richer premium and a wider buffer between the short strike and the current stock price.

The spread width is typically $5 wide for most individual stocks and ETFs. Narrower spreads, such as $2 or $3 wide, require less capital but generate less premium per dollar of capital at risk. Wider spreads, such as $10 wide, generate more premium in absolute terms but require proportionally more capital. Most income sellers use $5-wide spreads as a practical balance between income and capital efficiency.

The short strike should always be at a price where you would be comfortable with the stock declining to that level. While the spread caps your loss, a position that is tested at the short strike requires active management. Choosing a short strike that represents a genuinely comfortable level of support for the stock reduces the stress of managing positions that move against you.

The same 30 to 45 day expiration framework applies to the bull put spread. Monthly expirations are the most liquid. The theta decay profile is optimal in this window and gamma risk remains low enough to manage positions calmly.

Check IVR before every entry. A bull put spread entered when IVR is above 50 benefits in two ways. First, the premium available at any given delta is richer, meaning more income for the same strike. Second, if IV falls after entry, the spread narrows faster through vega compression in addition to theta decay, which can accelerate the path to the 50 percent profit target.

When IVR is below 30, the premium available at any given strike is thin. The income generated may not justify the capital committed. Wait for better conditions.

Two management rules apply to every bull put spread, following directly from the principles established in Articles 18 and 30.

Close at 50 percent of maximum profit. When the spread can be bought back for $0.35 or less (50 percent of the $0.70 credit received), close the position. Place a good-till-cancelled buy-to-close order for the full spread at $0.35 immediately after the opening fill. This rule captures the most efficient portion of the theta decay while exiting before gamma risk rises.

Close or roll at 21 days to expiration. If the position has not yet reached 50 percent profit by 21 days remaining, close it outright or roll it to the next monthly expiration. Rolling involves buying back the current spread and selling a new spread at the next expiration, typically for a net credit if the stock has not moved significantly against the position.

If the spread moves against you: When the short put is tested and the stock approaches the short strike before 21 days, do not wait passively. Consider closing the position for a loss equal to approximately two to three times the original credit received. A $0.70 credit means closing when the spread reaches $1.40 to $2.10. This rule limits losses to manageable levels rather than allowing the position to approach the maximum loss.

What is a bull put spread and when should I use it? A bull put spread sells a put at a higher strike and buys a put at a lower strike on the same underlying and expiration, collecting a net credit upfront. It is appropriate when you have a neutral to mildly bullish view on a stock or ETF and want to collect premium income with defined maximum loss and lower capital requirements than a cash-secured put at the same short strike. It is most effective when IVR is above 50, giving you richer premium and a better structural edge. The position profits from the passage of time, a rise in the stock, or a fall in implied volatility after entry.

How is a bull put spread different from a cash-secured put? Both strategies sell a put at the same strike and collect a similar premium. The key differences are capital requirements and risk definition. A cash-secured put requires the full cash to purchase 100 shares at the strike, typically several thousand dollars per contract. A bull put spread requires only the spread width minus the credit received as collateral, typically a few hundred dollars per contract. The cash-secured put has undefined downside below the short strike until assignment. The bull put spread caps the maximum loss at the spread width minus the credit, regardless of how far the stock falls. The trade-off is that the spread generates less premium than the standalone put because the bought put costs money that reduces the net credit.

What happens if the stock falls through both strikes at expiration? If the stock closes below the long put strike at expiration, the spread reaches its maximum loss of $430 per contract in our example. The position can be closed at any point before expiration to limit losses to less than the maximum. Most experienced spread sellers would have exited the position before reaching maximum loss using the two-to-three times credit stop rule. If the position is held through expiration and the stock closes below the long put strike, the two puts offset each other and the net loss equals the spread width minus the credit received, which is exactly the maximum loss figure calculated at entry.

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