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Bull Put Spread Strategy

Strategy Type:

Bull Put Spread is a bullish strategy. It is used when the investor expects the underlying asset's price to rise moderately.

Components: The strategy involves two main components:

  • Short Put Option: The investor sells (writes) a put option with a higher strike price. By doing this, they may be obligated to buy the underlying asset at the strike price if the option is exercised by the option buyer.
  • Long Put Option: Simultaneously, the investor buys a put option with a lower strike price. This option provides protection and limits potential losses.

Profit and Loss Potential:

  • Maximum Profit: The maximum profit is limited to the net premium received when selling the put minus the premium paid for the long put.
  • Maximum Loss: The maximum loss is limited to the difference between the strike prices of the two put options minus the net premium received.
Break-Even Point: The break-even point is the strike price of the short put minus the net premium received.

Strategy Goals:

  • The primary goal of a Bull Put Spread is to profit from a moderately bullish or neutral market by generating income through the premium received for selling the higher strike put option.
  • The strategy is designed to limit risk compared to simply selling a put option by providing downside protection through the long put.

Risk Management:

  • The maximum risk is limited to the difference between the strike prices minus the net premium received.
  • The strategy is suitable for investors who expect moderate bullishness and want to control risk.