Bull Put Spread ~ Put Options

Bull Put Spread

Put Spreads can be used when an investor is willing to accumulate stock, but have downside protection in case the underlying stock breaks below a pre-determined level. The strategy is called the bull put spread.

What you do is sell out of the money put options, but purchase further out of the money put options for downside protection in case the stock breaks down. For example if XYZ is trading at $25, the investor sells 1 $20 put option and buys one $15 put option for a net credit of $1.  If the stock stays above $20, the investor will keep the credit. If it goes below $20, the stock will be put to the investor, but the investor has downside protection at $15 so the maximum potential loss is capped at $4.

SPY Credit Put Spread

P/L Graph for SPY Bull Put Spread

Advertisements

About sellacalloption

Portfolio manager and chief option strategist for Fusion Asset Management. Professional option trader with VTrader Pro, LLC.

Posted on October 20, 2011, in Bullish Option Strategies. Bookmark the permalink. Leave a comment.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: