What Are Bull Put Spreads and How Do They Work?

Options trading isn’t just about making money—it’s about making smart decisions, understanding risk, and ensuring that every trade has a purpose. When I first started trading, I thought it was all about picking the right direction and hoping for the best. But over time, I realized that strategies like the bull put spread are where real traders separate themselves from gamblers.

If you’re just getting into options, you might have heard about credit spreads and how they can be used to generate income with a defined risk. The bull put spread is one of those strategies that can work well in a market that’s steady or trending slightly higher. But the best part? You don’t need a massive move in the stock to make money. In this article, I’ll break down how this strategy works, why it’s useful, and how you can integrate it into your trading.

Understanding the Bull Put Spread: What It Is and Why It Works

A bull put spread is a type of credit spread that involves selling one put option and simultaneously buying another put option with a lower strike price. Both options have the same expiration date, which simplifies trade management. What makes this strategy appealing is that it offers a way to profit from a stock that doesn’t have to skyrocket—just staying above a certain price is enough.

I’ve used this strategy countless times, especially in stable or mildly bullish markets. Instead of trying to predict a big rally, I’m simply betting that the stock won’t drop below my chosen short put strike price. This approach means I don’t have to be aggressively bullish—I just need the stock to hold its ground.

Breaking Down the Components

  • Short Put (Sold Put): This is the option I sell at a higher strike price, collecting a premium in return.

  • Long Put (Bought Put): This is my hedge—a put option I purchase at a lower strike price to limit my downside risk.

  • Net Credit: The difference between the premium I receive from the short put and the cost of the long put. This is my maximum potential profit.

The goal is simple: If the stock stays above my short put strike, both options expire worthless, and I keep the premium as profit. If the stock drops, my long put helps cap my losses, ensuring I never take on unlimited risk.

The Mechanics: How a Bull Put Spread Generates Profit

The best part about this strategy is that I don’t need a major rally to win. Even if the stock moves sideways or slightly down, I can still walk away with a profit. That’s why bull put spreads are often referred to as “high-probability trades.” Unlike buying a call option, where the stock needs to climb significantly, here I’m simply betting against a major decline.

How the Numbers Work

  • Breakeven Price: This is calculated as the short put strike price minus the net credit received.

  • Maximum Profit: The credit received when opening the trade—this happens if the stock stays above the short put strike at expiration.

  • Maximum Loss: The difference between the strike prices minus the credit received—this is the worst-case scenario if the stock crashes below the long put strike.

For example, let’s say I sell a $100 put for $3 and buy a $95 put for $1. My net credit is $2. If the stock stays above $100, I keep the $2 per share as profit. If the stock drops below $95, my max loss is $3 per share ($5 spread width – $2 credit received).

Why I Prefer Bull Put Spreads Over Naked Puts

Some traders prefer selling naked puts instead of using a spread. While naked puts can generate higher premiums, they also come with unlimited downside risk. I’ve seen traders wipe out entire accounts because they sold puts without protection, only for the stock to crater unexpectedly.

With a bull put spread, my risk is always defined. I know the exact amount I can lose before I even enter the trade. This makes it easier to sleep at night, especially during earnings season or volatile market conditions. Plus, I don’t need a large account to trade this strategy—unlike naked puts, which require significant margin, a spread has a fixed risk, making it more accessible to retail traders like me.

Step-by-Step Guide to Placing a Bull Put Spread

  1. Pick the Right Stock or Index: I focus on stocks that have strong support levels and aren’t prone to massive, unpredictable swings.

  2. Choose Strike Prices Wisely: The short put should be below the current stock price, while the long put is set at an even lower strike price.

  3. Select the Expiration Date: I usually go for options that expire in 2-6 weeks to balance time decay and premium collection.

  4. Enter the Trade: I place the order as a credit spread and make sure I’m collecting enough premium to justify the risk.

  5. Manage the Position: If the stock holds above my short put strike, I can let the trade expire for full profit. If it moves against me, I might close early or roll the spread.

Expanding the Strategy: Adjustments and Rolling

Adjusting When the Trade Moves Against You

Markets are unpredictable, and sometimes a trade doesn’t go as planned. If the stock price starts dipping towards your short put strike, you have a few choices:

  • Close the trade early for a smaller loss.

  • Roll the spread to a later expiration or different strike prices.

  • Adjust the strikes to lower risk and maintain profitability.

Understanding when and how to adjust your position is key to being a successful options trader.

The Reality of Trading Bull Put Spreads: Real-World Example

One of my favorite trades was on Apple (AAPL) when it was trading at $175. Instead of buying shares, I sold a bull put spread:

  • Sold 1 AAPL 170 Put for $3.00

  • Bought 1 AAPL 165 Put for $1.50

  • Net Credit Received: $1.50 ($150 per contract)

If AAPL stayed above $170, I would keep the $150 per contract. If it dropped below $165, my max loss would be $350. Fortunately, AAPL remained stable, and I walked away with a full profit.

Final Thoughts: Why This Strategy Should Be in Your Toolkit

Bull put spreads are a fantastic way to generate income while controlling risk. Unlike directional bets, they offer flexibility and high probabilities of success, especially when executed properly. If you’re a beginner, this strategy is a great way to ease into options trading without taking on excessive risk.

My advice? Start small, practice with paper trading, and always be mindful of risk. The more you understand how bull put spreads work, the more confident you’ll become in navigating the options market.