Bull Put Spread
The Bull Put Spread
The bull put spread is another favorite amongst option traders. Being synthetically equivalent the bull call spread, the bull put spread is a great alternative when volatility skew is favoring the put options. The bull put spread is usually placed for a net credit and takes advantage of stocks moving up, like it’s synthetically equivalent strategy the bull call spread. The bull put spread should definitely be another tool in the arsenal of the individual investor.
Bull Put Spread Risk Profile
Composition
Long one put option with a lower strike price and short one put option with a higher striker price.
Risk/Reward
Max Reward: Limited profit potential. Limited to the net credit received for the spread. In other words , the premium received for the short option less the premium paid for the long option.
Max Risk: Limited risk potential. Limited to the premium paid for the long option minus the premium received for the higher priced short option.
Characteristics
The bull put spread is a bullish position. It is a long delta spread and takes advantage of underlying securities such as stocks and EFTs going up. Best used with stocks in a slow grinding uptrend.
The bull put spread is one of the most cost effective methods to get take a bullish position in the markets. The only downfall is the limited gain potential. The bull put spread is synthetically equivalent to the bull call spread.
The vertical spread is an incredibly durable, flexible and powerful strategy and will most definitely be a widely used weapon in the arsenal of an option trader. Learn it and use it.
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