How to Set Up a Bull Put Credit Spread

Last updated: May 1, 2025

Options trading can seem overwhelming at first, but strategies like the bull put credit spread are fantastic entry points for beginner traders. We use this strategy successfully in our Monthly Trend services. Not only does this strategy offer limited risk, but it also provides an opportunity to generate consistent income in moderately bullish markets. If you’re curious about how to set one up, you’re in the right place. Let’s dive into the details of this strategy, break it down into actionable steps, and explore how you can use it effectively.

Table of Contents hide

1 What Is a Bull Put Credit Spread?

2 Key Components of a Bull Put Credit Spread

3 Step-by-Step Guide to Setting Up a Bull Put Credit Spread

4 SPX vs SPY: Which Is Better for Bull Put Credit Spreads?

5 When to Use a Bull Put Credit Spread

6 Managing Risk in a Bull Put Credit Spread

7 Common Mistakes Beginners Make (and How to Avoid Them)

8 Profit Potential and Breakeven Point

9 Conclusion

What Is a Bull Put Credit Spread?

At its core, a bull put credit spread is an options strategy designed for traders who expect a stock or index to stay above a certain price by the time the options expire. It involves two key actions: selling a put option at a higher strike price while simultaneously buying another put option at a lower strike price. The primary goal here is to collect the net premium—the difference between the price of the short put and the long put. As a trader, your profit comes from this premium, which you get to keep if the underlying asset stays above the higher strike price. Why is this strategy so popular? For one, it’s a defined-risk strategy, meaning your potential losses are capped. This makes it especially appealing for beginners who want to dip their toes into options trading without exposing themselves to unlimited risk. Additionally, it’s an income-generating strategy, as you receive the premium upfront when you initiate the trade. For example, imagine a stock is trading at $50. You sell a put option with a $50 strike price and simultaneously buy a put option with a $49 strike price. If the stock is above $50 at expiration, you keep the entire premium.

Key Components of a Bull Put Credit Spread

To successfully execute a bull put credit spread, you need to understand its essential components. Let’s break it down:

1. Short Put

The short put is the option you sell at a higher strike price. This is the primary source of your premium income

2. Long Put

The long put is the option you buy at a lower strike price. Its purpose is to act as a safety net, limiting your maximum loss if the trade goes against you. While this option reduces your net premium, it’s a crucial element in defining and managing risk.

3. Strike Prices

Choosing the right strike prices is essential. Typically, traders select strikes at or below the current stock price to create a buffer zone for the strategy to succeed. The wider the gap between the strikes, the higher the potential profit and risk.

4. Expiration Dates

Options have an expiration date, and timing plays a crucial role in this strategy. Shorter expirations often yield higher premiums but require more precise timing. Longer expirations provide more flexibility but lower the annualized return. By understanding how these components work together, you can better tailor the strategy to your market outlook.

Step-by-Step Guide to Setting Up a Bull Put Credit Spread

Now that you understand the basics, let’s walk through the steps to set up your first bull put credit spread.

1. Choose an Underlying Asset

Start by selecting a stock or index with a bullish outlook. This could be based on technical analysis, news, or overall market sentiment. The SPX or Stocks in stable uptrends often work well for this strategy.

2. Determine Strike Prices

Select a short put strike price below the current stock price and a long put strike price further below that. Ensure the strikes create a balance between risk and reward.

3. Pick an Expiration Date

Decide on an expiration date based on your trading goals. Weekly options are great for short-term strategies, while monthly options work well for a more conservative approach.

4. Calculate Potential Risk and Reward

Use an options calculator or your trading platform to evaluate the maximum profit, maximum loss, and breakeven point.

5. Place the Trade

Enter the trade on your broker’s platform by selecting the two options and creating the spread. Platforms like Thinkorswim and Tastyworks simplify this process with user-friendly interfaces.

SPX vs SPY: Which Is Better for Bull Put Credit Spreads?

Many beginners ask whether they should trade SPX or SPY. Both work, but they behave differently:

SPX (S&P 500 Index Options)

Cash-settled: no assignment of shares
European-style: cannot be exercised early
Large contract size: more leverage, larger credits
Popular for income trading (including our Monthly Trend service)

SPY (ETF Options)

Physically settled: assignment results in 100 shares
American-style: early exercise possible
Smaller contract size: better for small accounts
Higher liquidity at lower notional size

Quick rule of thumb:

Small account? SPY
Larger account or automation? SPX

When to Use a Bull Put Credit Spread

Timing is everything in options trading. A bull put credit spread is most effective under the following conditions:

Moderately Bullish Outlook: The strategy works best when you believe the stock will remain stable or rise slightly but not skyrocket.
Low Implied Volatility: Premiums tend to shrink when volatility is low, but this also reduces the risk of large price swings against your position.
Strong Support Levels: Look for technical support levels where the stock is unlikely to dip further.
Ideal IV Environment:
This strategy performs best when implied volatility is elevated but not extreme. Higher IV = higher credits and a bigger cushion between the stock price and your short strike.

For example, if a stock is trading at $50 and shows strong support at $48, setting up a bull put credit spread below $48 can be a good idea.

Managing Risk in a Bull Put Credit Spread

One of the best features of this strategy is its built-in risk management. Your maximum loss is capped at the difference between the strike prices, minus the premium received. However, there are additional steps you can take to manage risk:

Position Sizing: Only risk a small percentage of your account on each trade. This prevents one bad trade from significantly impacting your portfolio.
Monitoring Trades: Keep an eye on the underlying asset’s price. If it approaches your short strike, consider adjusting the spread or exiting early.
Adjusting the Spread: If the market moves against you, rolling the spread to new strikes or a later expiration can help mitigate losses.

Common Mistakes Beginners Make (and How to Avoid Them)

Even though the bull put credit spread is beginner-friendly, new traders often fall into avoidable traps. Here are the most common mistakes:

1. Selling strikes too close to the current price
Beginners often pick strikes with high premium but low probability of success. Always check support levels and expected volatility before selecting the short strike.

2. Ignoring implied volatility
Low IV means smaller credits but safer trades. High IV means bigger credits but higher risk. Beginners often chase premium without understanding volatility risk.

3. Not having an exit plan
Holding to expiration “no matter what” is one of the fastest ways to take full losses. Always define your stop loss or adjustment trigger.

4. Using too-wide or too-narrow spreads without intention
A $20-wide spread behaves very differently from a $5-wide one. Match your strike width to your risk tolerance and account size.

5. Risking too much of the account
A defined-risk trade is still a risk. Beginners should risk only a small percentage per trade (e.g., 1–3%).

6. Trading illiquid tickers
Wide bid–ask spreads = poor fills + unnecessary losses. Stick to highly traded underlyings like SPX, SPY, QQQ, or mega-cap stocks.

Profit Potential and Breakeven Point

Understanding your profit potential and breakeven point is crucial for successful trading. Here’s how they’re calculated:

Profit Potential: The maximum profit is the net premium received when setting up the trade. For example, if you collect $100 in premiums, that’s your potential gain.
Breakeven Point: Subtract the net premium received from the short put’s strike price. Using the earlier example, if your short put strike is $48 and you collect $1 in premium, your breakeven point is $47.

Knowing these figures helps you evaluate whether a trade is worth taking based on its risk-reward ratio.

Conclusion

The bull put credit spread is a powerful strategy for generating income while limiting risk. It’s particularly appealing for beginner options traders who want to explore bullish strategies without exposing themselves to unlimited downside. By understanding its components, timing the market appropriately, and managing risk effectively, you can make this strategy a cornerstone of your trading toolbox. We offer free trials to copy trade or automate our Weekly Trend and Monthly Trend services that have been beating the market for more than 10 years. Remember, practice is key. Start small, learn from each trade, and refine your approach as you gain experience. And as always, don’t hesitate to ask questions or seek guidance along the way.