option-info and options-graphs sites:
Put , 1 strike down to ATM strike
Bull Put Spread, Bull Put Vertical
Outlook: Neutral to mildly bullish. The stock must remain near where
it is when you enter the position, or move higher, by expiration.
buy Put OTM and sell Put ATM.
when: stock stays put, or falls slightly, or rises.
Gain: initial credit.
when: stock falls too much.
Loss : limited to the difference in strike prices - the initial credit.
Calculation: Short Put strike - initial credit
compared to stock: limited risk, less capital needed, greater leverage,
can gain even if stock drops slightly.
compared to stock: gains are limited to the upside if stock rises
more than the sold strike, no dividends.
after entry, increasing implied volatility is positive if the stock
falls, but negative if the stock rises.
after entry, the passage of time is positive if the stock rises,
but negative if the stock falls.
Requirement: the difference in strike prices x number of shares represented.
see the Vertical Spread Strategies page and
Bull Put credit spread
Equivalent: Long Stock plus Long Put ITM plus Short Call OTM. (A
Bull Put can be used if you are mildly bullish on a stock and also want
a little bit of downside protection.
Bull Put and the equivalent Bull Call are probably the most similar
pure options strategies to the Covered
Call or Collar, with the added advantage
of a known and limited risk. The strategies retains some "downside
protection" as well as limited gains to the upside.
- The gains
are limited to the upside, so you don't want to be "too" bullish.
- The best
time for entry of this Bull Put is when a stock has higher than normal
implied volatility, and you expect the stock to stay at current levels
or go higher. Entering when volatility is higher will reduce the debit
on entry, which lowers the breakeven and gives more downside protection.
If the stock price then stays reasonably steady or rises, both the passage
of time and the IV returning to normal (lower) levels will benefit the
- The Bull
Call, -1 to ATM is a nearly identical trade, done with calls instead
of puts, and entered for a debit instead of a credit. One advantage
of the call strategy is that if the stock moves bullishly like you expect,
the long call can be exercised to buy stock if you are bullish for the
this is a neutral to bullish position, the trader is expecting the stock
to stay put or rise. If the stock falls instead, the trader would be
wise to cut his losses short. Using the example graph, if the stock
fell to about $47.50 at any time, the trade could be exited for a loss
of about $100. Just sitting and waiting could likely result in the maximum
loss of $342 - more than three times that much.
- If the
stock stays above the breakeven point, the trader should stick with
the position. As the option graph shows, just the passage of time is
a benefit at any stock price above breakeven.
- If the
stock falls and you do not trade out of the position before expiration,
it is possible to receive an automatic exercise on the long put, so
you will sell the stock, and be assigned on the short put, so you will
buy the stock. See the Rules, Tips,
& Techniques page for more.
- It is
not usually recommended to adjust one part of a Bull Put. If you take
a trading profit on the short puts when the stock rises for instance,
you are actually increasing your maximum risk. You might think you will
sell the puts again the next time the stock goes down, but what if it
- It is
possible to roll the entire bull put to lower strike prices if the stock
drops, but that really amounts to closing one trade at a loss and opening
another trade in hopes of a gain. Plus, the stock has not behaved bullishly
yet you are taking a second bullish position.
- If the
stock is over the sold put strike with expiration near and you have
made 80% or so of the total possible on the short puts, you can roll
everything out to the next month, and higher strike prices, if you are
still bullish on the stock.