What is a Bull Put Spread? Definition, Formula, and Example
A bull put spread is a bullish options strategy that sells a put at a higher strike and buys a put at a lower strike with the same expiration, collecting a net credit with defined risk.
Bull Put Spread Definition
A bull put spread, also called a put credit spread or short put spread, is a bullish options strategy built by selling a put option at one strike price and simultaneously buying a put option at a lower strike price with the same expiration date. The trader collects a net credit up front because the sold put is worth more than the purchased put. The position profits when the underlying stock stays above the short strike through expiration, and both the maximum gain and maximum loss are fixed at order entry.
How the Bull Put Spread Is Calculated
The position consists of two legs:
- Short put at strike A (higher strike)
- Long put at strike B (lower strike), same expiration
Key formulas:
- Net credit received = premium of short put − premium of long put
- Maximum profit = net credit received (realized if the stock closes at or above strike A at expiration)
- Maximum loss = (strike A − strike B) − net credit (realized if the stock closes at or below strike B)
- Break-even = strike A − net credit
The spread has positive theta and negative delta at entry. Time decay works in the trader's favor, and the position gains value as the stock rises or as implied volatility contracts.
Worked Example
Suppose AAPL trades at $230 and a trader expects it to hold above $225 over the next month. The trader constructs a bull put spread with 30 days to expiration:
- Sell the $225 put for $4.20
- Buy the $220 put for $2.60
Net credit = $4.20 − $2.60 = $1.60 per share, or $160 per contract.
- Maximum profit: $160 if AAPL closes at or above $225 at expiration. Both puts expire worthless and the trader keeps the full credit.
- Maximum loss: ($225 − $220) − $1.60 = $3.40 per share, or $340 per contract, if AAPL closes at or below $220.
- Break-even: $225 − $1.60 = $223.40.
The trader risks $340 to make $160, a risk-reward profile typical of high-probability credit spreads where the short strike sits below the current price.
When Traders Use It
Traders deploy bull put spreads when they are moderately bullish or neutral and want to monetize time decay without buying stock or paying a debit. The strategy is common in three situations: selling premium below a technical support level, harvesting elevated implied volatility ahead of or after an event, and generating income in a sideways-to-up market. Because risk is defined, the spread requires far less buying power than a cash-secured put while expressing a similar directional view. Traders screen for candidates by looking for stocks holding above support with elevated IV rank, since rich premiums widen the break-even and improve the credit collected. You can find candidates with strong technical setups and unusual premium flow on the live scanner.
Limitations and Common Misconceptions
The most common misconception is that a high win rate makes the strategy free money. Bull put spreads win frequently but lose larger amounts when they fail, so a single max-loss event erases several winning trades. Position sizing matters more than entry selection. Second, the spread is not the same as being long stock: the profit is capped at the credit received, so a strong rally delivers no additional gain. Third, assignment risk on the short put rises when the option moves in the money near expiration or when the extrinsic value falls below the dividend ahead of an ex-date. Finally, the credit collected is not income in the accounting sense; it is collateral against a defined liability that is only extinguished at expiration or when the spread is bought back.