Bull Put Spread: Get Paid to Be Bullish (Credit Spread)
Every spread so far cost you money up front. This one pays you. Welcome to credit spreads, where you collect cash to enter and win if the stock just holds its ground.
- What a credit spread is, and how you get paid to enter
- How a bull put spread is built from two puts
- Your max profit, max loss, and why time decay now helps you
- How it is the same two puts as last lesson, seen from the other side
Every spread so far, you paid to put on. You handed over $370 and needed the stock to move before you saw a profit. This lesson, the cash flows the other way: you get paid $370 the moment you enter, and you win as long as the stock simply does not fall apart.
That is the world of credit spreads, and the first one is a bull put spread.
Here is the idea behind it. When you sell an option, you collect its premium up front and take on a promise. Selling a put means you collect cash now, but you promise to buy the stock at the strike if the buyer wants to sell it to you. Done alone, that promise has a lot of risk. So in a bull put spread you do it with a safety net: you sell one put for income, and you buy a cheaper put below it that caps how much that promise can ever cost you.
Getting Paid to Enter
Apple is at $200, and you think it holds steady or drifts up. You do not need a big move up. You just need it to not fall apart.
So you sell a put to collect income, and buy a cheaper one below it for protection:
You sell the $200 put for $5 a share, collecting $500. That is the engine of the trade, the leg that pays you.
You buy the $190 put for $1.30 a share, paying $130. That is your safety net, the leg that caps your risk.
The difference is what you pocket and keep. Because the put you sold is worth more than the put you bought, money lands in your account. That is the net credit.
That $370 is in your pocket today. The whole game now is simple: hold on to as much of it as you can.
What You Keep, What You Risk
Credit spreads flip the scoreboard. Here, doing nothing is good news.
Your max profit is the credit you collected: $370. If Apple sits at $200 or higher at expiration, both puts expire worthless. The put you sold dies (you keep the $500), the put you bought dies (it cost you $130), and the $370 you banked on day one is yours, free and clear. You make the most by having the stock do nothing.
Your max loss is the width minus the credit: $630. If Apple falls to $190 or lower, both puts are in play. The $10 width works against you, but the $3.70 you collected softens it, so you lose $6.30 a share, $630 for the contract. That is the floor, even if Apple drops to $150.
Your breakeven is the strike you sold minus the credit: $196.30. As long as Apple stays above $196.30, you come out ahead.
And here is the part sellers love: time decay now works for you. (Time decay is the slow drip of value out of an option as its expiration gets closer.) Every day Apple holds above your strike, the puts you are short lose a little value, drifting toward the worthless finish you want.
Notice the tradeoff. Your reward ($370) is smaller than your risk ($630). That feels backwards until you realize the odds are tilted your way: you win if Apple rises, if Apple sits still, or even if it drifts down a little, as long as it stays above $196.30. You are getting paid to be patient.
The Same Two Puts, the Other Side
Here is something neat. Look closely at the strikes: the $200 put and the $190 put. Those are the exact same two puts from last lesson's bear put spread.
That is not a coincidence. A bull put spread is simply a bear put spread seen from the seller's chair. Last lesson you were the buyer, paying $370 and hoping Apple fell. This lesson you are the seller, collecting that same $370 and hoping it does not. One trade, two seats.
- Wins if Apple drops below $196.30
- Best case +$630
- Worst case -$370
- Wins if Apple stays above $196.30
- Best case +$370
- Worst case -$630
When I was advising clients, this was the moment the lightbulb came on. Once you see that every put spread is one deal with two sides, you stop memorizing strategies and start choosing a seat. Do I want to pay for a move, or get paid to wait for one?
When a Bull Put Spread Fits
- You are bullish to neutral (you just need the stock to hold)
- You want income and time decay on your side
- You would not mind buying the stock near the lower strike anyway
- Option prices are rich, so the credit is worth the risk
- You expect a real drop (you are on the wrong side)
- The credit is tiny next to the width you are risking
- A big event could gap the stock far below your protection
That point about "rich option prices" is a big one, and it has its own home later in the course. When fear is high, the premiums you collect get fatter, which is the best time to sell a credit spread. We measure exactly that in IV Rank and IV Percentile.
- A bull put spread sells a put and buys a lower put, for a net credit.
- You collect the credit up front, $370, and keep it if Apple stays at or above $200.
- Your max profit is that credit, $370. Your max loss is the width minus the credit, $630.
- Your breakeven is the strike you sold minus the credit: $196.30.
- Time decay works for you, and you win if the stock rises, holds, or drifts down a little.
Pop Quiz
Three quick questions to lock it in. Pick an answer and the explanation shows up right away.
You sell the $200 put and buy the $190 put for a $370 credit. What is your max profit?
On a credit spread, the credit is the prize. If Apple stays at or above $200, both puts expire worthless and you keep the full $370. It never gets better than that.
Which outcome makes a bull put spread its full profit?
A credit spread loves a quiet stock. If Apple simply holds at or above $200, both puts die worthless and you keep the entire credit. Doing nothing is the dream outcome.
Does time decay help or hurt this trade?
You collected more premium than you paid, so you are a net seller. Every day that passes drains value from the options you are short, which is exactly what you want. Time decay is on your side.
Bottom Line
A bull put spread pays you to be patient. You sell a put for income, buy a cheaper one to cap your risk, and pocket the credit on day one. As long as the stock holds above your breakeven, time quietly does the work for you, and you keep what you collected.
It is the same two puts as the bear put spread, just from the seller's seat. Once that clicks, half the options world stops looking like a list of strategies and starts looking like a set of choices.
Next up: Bear Call Spread. You just sold a put spread to bet a stock holds up. Next lesson you sell a call spread, the mirror, to get paid when you think a stock will not climb.