Bull Put Spread Option Strategy-Bullish Options Trading Strategies
A Bull Put Spread, also known as a Bull Put Credit Spread strategy, is a Bullish strategy that is used when the underlying instrument's price is expected to increase modestly or be less volatile. The approach entails purchasing out-of-the-money (OTM) put option and selling in-the-money (ITM) put options at different strike price on the same underlying. This approach has a restricted risk and reward. The Bull Put Spread is designed to generate positive credit. Writing an in-the-money put option will earn the investor/trader a premium, which will aid in compensating for the out-of-the-money (OTM) put option.
Risk:
When the price of an asset falls, a risk component enters the picture. The utmost risk, however, is restricted to the expiration price of the long OTM put after deducting the net premium obtained.
Reward
Profit will be realized when the fundamental price rises above the target price of the Short Put on the expiry date.
Construction
Buy 1 OTM Put Option
Sell 1 ITM Put Option
| Option Type | Expiry Date | Strike Price | LTP | Action | No. Of Lots |
| PUT | 29/03/2023 | 17300.0 | 276.95 | Sell | 1 |
| PUT | 29/03/2023 | 17100.0 | 170.45 | Buy | 1 |
Assume the NIFTY has been trading around 17000 and the trader employs a Bull-Put-Spread strategy. He purchases one 17100 out-of-the-money (OTM) Put Option at a premium of Rs. 170 and shorts one 17000 in-the-money (ITM) Put Option for Rs. 276. The contract will result in a positive credit of Rs. 7875 ((275-170) *75.)
Payoff Chart of Bull Put Spread Option Strategy
| Max Risk | Max Reward | Lower Break Even | Upper Break Even |
| 93.499985 | 106.500015 | 17193.5 | 17193.5 |
| Market Expiry | Payoff 1 | Payoff 2 | Net Premium | Option PayOffAt Expiry |
| 16650.0 | -650.0 | 450.0 | 106.5 | -93.5 |
| 16700.0 | -600.0 | 400.0 | 106.5 | -93.5 |
| 16750.0 | -550.0 | 350.0 | 106.5 | -93.5 |
| 16800.0 | -500.0 | 300.0 | 106.5 | -93.5 |
| 16850.0 | -450.0 | 250.0 | 106.5 | -93.5 |
| 16900.0 | -400.0 | 200.0 | 106.5 | -93.5 |
| 16950.0 | -350.0 | 150.0 | 106.5 | -93.5 |
| 17000.0 | -300.0 | 100.0 | 106.5 | -93.5 |
| 17050.0 | -250.0 | 50.0 | 106.5 | -93.5 |
| 17100.0 | -200.0 | 0.0 | 106.5 | -93.5 |
| 17150.0 | -150.0 | 0.0 | 106.5 | -43.5 |
| 17200.0 | -100.0 | 0.0 | 106.5 | 6.5 |
| 17250.0 | -50.0 | 0.0 | 106.5 | 56.5 |
| 17300.0 | 0.0 | 0.0 | 106.5 | 106.5 |
| 17350.0 | 0.0 | 0.0 | 106.5 | 106.5 |
| 17400.0 | 0.0 | 0.0 | 106.5 | 106.5 |
| 17450.0 | 0.0 | 0.0 | 106.5 | 106.5 |
Bull Put Spread Option Trading Example
Scenario 1
At expiry if the NIFTY dips down to 16900, his net loss will be Rs. 7050 = {(-17300 + 16900) + (17100-16900) + (276-170)} *75
Loss = Loss on in the money put option + gain on at the money put short + net credit premium received from entering into contract.
Scenario 2
if at expiry, NIFTY closes at 17300 level, both the Puts expire worthless and the trader gets to keep the premium received while executing the contract Rs. 7875.
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Also read Call Backspread Option Strategy
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