Bull Put Spread

A put sold with a lower put bought in the same expiration: it opens for a credit, kept in full while the underlying stays above the short strike, with the loss capped.

Also called Short put spread, Put credit spread

Outlook

Bullish

Family

Credit Spread

Level

Intermediate

Legs

2 legs

Expirations

1 expiration

Opens for

Credit

Maximum profit

Limited

Maximum loss

Limited

Legs at the reference strikes this page's diagrams are drawn from

Leg	Side	Contract	Ratio	How the strike is chosen
B	Short	Put 97.5	1	Delta 30
A	Long	Put 92.5	1	5.00 points further out of the money than B

What it is

A put sold at B and a further out-of-the-money put bought at A, both in the same expiration. The sold put brings in more premium than the bought put costs, so the structure opens for a credit, and that credit is the maximum gain.

The long put at A is what turns a short put into a defined-risk position. Below A, every further dollar the underlying loses on the short leg is recovered on the long one, so the loss stops there rather than continuing to zero.

The payoff

At expiration

At expiration the position keeps the full credit above the short strike B, falls in a straight line between B and A, and is flat at its maximum loss below A.

Three regions, and each has a name worth knowing:

• Above B — both puts expire worthless and the full credit is kept.
• Between A and B — the short put is in the money and the long one is not. The result slides linearly from the maximum gain to the maximum loss.
• Below A — both are in the money. The spread is worth its full width and the loss is fixed at (B − A) less the credit.

Break-even is B minus the credit. Maximum loss is the width of the spread less the credit, and it is reached at A rather than at zero.

How it behaves before expiration

Today, before expiration

Today's value is a shallow curve running between the two flat regions, well inside the sharp corners of the expiration line.

The dashed curve is much flatter than the expiration line, and the corners at A and B are rounded rather than sharp. A defined-risk credit spread reaches neither its maximum gain nor its maximum loss until close to expiry: the two legs’ time values largely offset, so what remains moves slowly.

That flatness is the practical difference from a short put. The position is less responsive day to day, in both directions.

The Greeks

Delta is positive but smaller than a short put at the same short strike, because the long put carries negative delta against it.

Gamma is negative near B and positive near A: the two legs’ gamma partially cancel, which is precisely why the position does not accelerate the way a naked short put does.

Theta is positive but modest. Income accrues on the short leg and is spent on the long one; the net is what is left.

Vega is negative and small. A volatility rise hurts, but far less than it hurts an unhedged short put, because both legs reprice together.

Where it lives in the volatility environment

Practitioners generally describe credit spreads as a way to sell premium with a known worst case, and observe that the credit available for a given width widens when implied volatility is high. The width of the spread, not the volatility environment, is what fixes the maximum loss.

What can go wrong

• Assignment on the short leg before expiry leaves 100 long shares per contract and a long put still open — a different position from the one intended, requiring capital until it is resolved.
• Pin risk at B. An underlying that finishes almost exactly at the short strike leaves assignment uncertain over the weekend.
• Both legs in the money is the maximum loss, and it arrives at A, not at zero. The loss is bounded, not small: a 5-wide spread for a 1.50 credit risks 3.50 to make 1.50.
• The wings can be illiquid. A far out-of-the-money long put may have a wide spread of its own, and closing the structure costs more than the mid prices suggest.
• Closing is two legs, not one. Both have to be dealt with, and a partially closed spread is an unhedged short put.

Building it in Option Panel

Open Build Strategy and pick Bull Put Spread. The builder seeds the short put at B and the long put at A, offering strikes by delta, percentage out of the money, an offset from another leg, an exact strike, or a target credit for the pair.

Selecting by spread credit is the one mode that optimises over both legs at once: it searches for the short strike whose pair, at the width given, pays closest to the credit asked for — because a target credit is a property of the spread and not of either contract alone.

Back to the encyclopaedia · What-if analysis in the docs

Related strategies

• Short Put — the same view without the long wing: more credit, no bound on the loss.
• Bear Call Spread — the same structure on the call side, for the opposite view.
• Bull Call Spread — the same view paid for as a debit rather than taken in as a credit.