What Is a Bull Put Spread?
A Bull Put Spread is an options strategy used when you expect the market to move moderately up or remain sideways.
It is a credit spread, meaning you receive a net premium upfront. Both the risk and reward are limited, making it a safer alternative to selling naked Puts.
š¹ How It Works
- Use two Put options of the same stock/index and the same expiry:
- Sell (write) a higher strike Put (near current market price).
- Buy a lower strike Put (further OTM) to protect against sharp downside moves.
š¹ Example
- Underlying: Nifty trading at 20,000
- Strategy: Bull Put Spread (monthly expiry)
- Sell 19,800 Put at ā¹150 premium
- Buy 19,600 Put at ā¹80 premium
Net Premium Received = 150 ā 80 = ā¹70 per lot
- If lot size = 50 ā Total Credit = ā¹3,500
š¹ Payoff Scenarios
- If Nifty closes above 19,800
- Both Puts expire worthless.
- You keep the entire premium = ā¹70 profit per lot (ā¹3,500 total).
- If Nifty closes between 19,600 and 19,800
- Short Put loses value, but long Put reduces the damage.
- Net outcome = Partial profit or limited loss.
- If Nifty closes below 19,600
- Both options are in the money.
- Maximum Loss = Difference in strikes ā Net Premium
= (19,800 ā 19,600) ā 70
= 200 ā 70 = ā¹130 per lot (ā¹6,500 total).
š¹ Strategy Summary
- Market View: Moderately bullish (expect price to stay above the higher strike).
- Risk: Limited (maximum loss = ā¹130 per lot in this example).
- Reward: Limited (maximum profit = net premium received = ā¹70 per lot).
- Best Case: Market closes above 19,800 ā maximum profit.
- Worst Case: Market closes below 19,600 ā maximum loss.