What a bull put spread actually is.
You'll also see it called a vertical put spread or a put credit spread. Same trade. Here's what you're doing when you put one on, in plain English.
The one-sentence version
You get paid up front to promise that a stock won't fall below a certain price by a certain date — and you buy a second, cheaper promise underneath it so that if you're badly wrong, your loss is capped at a number you knew before you started.
Break it into its two pieces
A put option is a contract that lets its owner sell 100 shares of a stock at a fixed price (the strike) before a fixed date (expiration). Someone buying a put is paying for protection against the stock falling. Someone selling a put is collecting that payment and taking on the obligation.
A bull put spread has two legs, opened at the same time:
Leg one — you sell a put. You collect money now. In exchange, if the stock is below your strike at expiration, you'll be assigned the shares at that strike (or, in practice, you'll close the position for a loss before that happens).
Leg two — you buy a put at a lower strike. You pay a little of the money you just collected. This is your insurance. If the stock collapses, this leg gains value and offsets the loss on leg one.
The difference between what you collected and what you paid is your net credit. That's the most you can make. The distance between the two strikes, minus that credit, is the most you can lose. Both numbers are fixed the moment you enter.
A concrete example
- The stock
- Trading at $100. You think it stays above $90 for the next six weeks. You don't need it to go up — just not fall much.
- Sell
- One $90 put, 45 days out. You collect $2.00 per share, so $200.
- Buy
- One $85 put, same expiration. You pay $0.75 per share, so $75.
- Net credit
- $125. That's the maximum you can make, and it's yours the moment you're filled.
- Spread width
- $90 − $85 = $5, which is $500 per contract.
- Maximum loss
- $500 − $125 = $375. This happens only if the stock is below $85 at expiration. It cannot get worse than this.
- Breakeven
- $88.75. Above that at expiration, you're profitable; below it, you're losing.
Notice what the trade does and doesn't need. The stock can go up, sit still, or even drift down to $88.75 and you still make money. You're not predicting a rally. You're betting that a specific bad outcome doesn't happen in a specific window, and getting paid for taking that bet.
Why it's a reasonable first trade
The worst case is known in advance. With a single sold put, or with buying shares outright, the loss is open-ended. Here you know your maximum loss to the dollar before you click the button. For a beginner, that matters more than anything else.
It's a defined structure, so it can be governed by written rules. Mine, for what it's worth: I only sell when implied volatility is high (the market is paying well for the promise), never with earnings inside the window, and only when the credit is 20–35% of the spread width. I take profit at roughly half the credit. I close if the loss reaches the size of the credit. Those are just my rules — the point is that a trade this well-defined can have rules, and you should write yours down before you trade.
You're the seller, not the buyer. Most options bought by retail traders expire worthless. Being the one who gets paid for a promise, and stacking the odds by asking for a promise that's easy to keep, is the direction I'd rather start from.
What to be aware of
- Losses are larger than wins, by design. In the example, you risk $375 to make $125. A well-chosen spread wins much more often than it loses, which is what makes the math work over time — but it means a single losing trade can take back several winners. Knowing that going in is what keeps it from being a surprise.
- Stocks can gap. On bad news, a stock can open well below your strikes before you have a chance to adjust. The insurance leg is exactly for this: it caps how much that can cost you.
- Early assignment is possible, though uncommon. Occasionally the buyer of your sold put exercises before expiration and you end up owning 100 shares. Your broker handles the mechanics; it's just worth knowing it can happen.
- Sizing is where care matters most. Because the credit is modest and the win rate is high, it's tempting to trade bigger than you should. Keeping positions small while you learn is what lets the high win rate work in your favor — and it's why sizing comes last on the how-to-start list.
If you want to try it
Paper-trade it first. Pick a large, liquid stock or an index ETF, pick a strike you'd be comfortable owning the stock at, go 30–45 days out, and write down your exit rules before you enter. Then grade yourself on whether you followed the rules — not on whether you made money.
Back to how to start