Bull Put Spread is an option strategy wherein the investor establishes a spread by buying put option of a lower strike price and simultaneously selling a put option of a higher strike price, of the same underlying and same expiry.
The name ‘Bull’ spread itself signifies that the investor is bullish on the price of the underlying security.
When to use this strategy?
This strategy is used when the investor is moderately bullish on the underlying security.
How to build this strategy?
This strategy has two legs:
Leg 1 – Sell ITM Put
Leg 2 – Buy 1 OTM Put
Credit Spread/Debit Spread
This is a credit spread strategy.
This strategy has limited profit potential.
When is this strategy profitable?
The investor reaps maximum profit when the underlying security’s price is equal to or greater than the strike price of the OTM (Higher Strike Price) put option.
The investor faces limited risk in this strategy.