Definition
Bull Put Spread
A bull put spread sells a higher-strike put and buys a lower-strike put to earn premium with a mildly bullish view.
This is a net-credit strategy: you sell a put closer to the money (collecting more premium) and buy a cheaper, lower-strike put as protection. You profit if the underlying stays above the sold strike, keeping the net credit, while the bought put caps your loss if it falls.
Indian option sellers favour bull put spreads on Nifty and Bank Nifty because they earn from theta decay while keeping risk defined — unlike a naked put. SPAN margin is lower than for a naked short put because the long put hedges the position. Maximum profit is the net credit; maximum loss is the strike gap minus that credit.
Related terms
- Bull Call SpreadA bull call spread buys a lower-strike call and sells a higher-strike call to bet on a moderate rise at lower cost.
- Bear Put SpreadA bear put spread buys a higher-strike put and sells a lower-strike put to profit from a moderate fall at lower cost.
- Iron CondorAn iron condor sells an out-of-the-money call spread and put spread to earn premium in a range-bound market with defined risk.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.