Bull Put Spread TUTORIAL [Vertical Spread Options Strategy]
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- Опубліковано 4 жов 2024
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The bull put spread is a bullish options strategy consisting of two separate put option transactions. One put option is sold and another put option at a lower strike price is purchased (same expiration cycle).
The bull put spread is one of the four vertical spread strategies.
The strategy has many other names that options traders use, including the short put spread, put credit spread, and simply selling a put spread.
In this video, we'll cover:
Bull put spread explained (setup, explanation, max profit potential, max loss potential, breakevens)
Historical trade examples so you can see exactly how the bull put vertical spread strategy has performed in the past in various scenarios.
A demonstration of setting up a short put spread on the tastyworks trading platform.
Be sure to leave a comment down below with any questions you may have!
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This is one of the powerful, simple and easy to understand training videos I have ever seen. I don't know who you are but are good....
As always, Chris You do an outstanding job of creating and delivering best education. Kudos to you! Very helpful and useful examples of BPS.
Another great video lesson on options trading, Chris. Thank you. Been weighing the P/L potential of Puts VS Bull Put credit spreads. As you said, comes with less a profit than average puts, but less loss as well.
What if the stock goes below the first put, and you get put (obligated to buy), but the stock doesn't fall enough for YOU to put on others, and, because we used a spread we sold & bought more contracts than we actually have cash to buy so many shares of the puts we sold?
Isn't that the real max loss scenario?
(I'm new, so genuinely wondering)
Thank Chris for the video! Best content for options I have found on UA-cam! Keep it up
I like how you've explained the downside or risk of what can happen with the option spread. There are a ton of people explaining options on YT and most only say "look at how you can win!" That gets annoying to me personally, because it is all just somewhat calculated guessing/ betting in the end and you should know exactly what happens, if you bet wrong.
If English is not your 1st language, you may find he speak a little fast and your mind can't process quick enough. i suggest going to the setting and reduce the speed to 0.75x. It worked for me. This video is by far the best in describing the logic behind the strategy.
Nice video - what happens if the share price falls between the spread width on expiry? for example, your last example of IWM, if the stock price falls to 142 at expiration, is it correct to say that it means both positions are not in your favour so max loss is: (1) your long position becomes worthless (OTM) and (2) your short position also makes losses (since it is ITM) - what happens to this short position (does a buyer would exercise the option and you have an obligation to sell the stock at 142)?
Thanks (sorry if my q doesn’t make sense..)!
Thank you for sharing, now i have a better understanding of whether i will be assigned or not, from the last part of the video. Thanks again
Very informative video. I just have one question. Why would you be assigned shares of stock if the price expires between the short put and the long put but not if both put options are in the money ?
i dont know, I really like this guy & the knowledge he is dropping. I feel like these vids will be like classic hits that go on for millions of views. Smooth, concise and to the point. Me? Option exits strats are my issue.
I’ve watched several of you videos (even the 3 hour intro to options epic). Your work is very helpful.
Why would a trader use a bull put spread vs the call spread? Is the level of certainty of stock price movement the deciding factor OR the certainty of a profit the deciding factor?
Why would u chose one over the other?
Can someone please answer this question? I was wondering the same thing. If you are bullish for a stock what are the benefits for a BULL PUT spread vs placing a BULL CALL spread? Thanks
@@kvill2732 If implied volatility is high (and therefore, so are options prices) you want to be a premium seller - bull put... if volatility is low (cheaper prices), be a buyer - bull call...
bull call spread is debit spread. whereas bull put spread's winning probability is very high
my successful trader friends usually execute short put spread far OTM, hence his winning prob is really high (more than 80%)
This is a very good question. My understanding is that with bull puts (as with bear calls) you receive a net credit. In both of these spreads, the stock price does not have to move at all, and can even move in the opposite direction slightly, and you will still turn a profit. A bull call spread usually requires a somewhat significant increase in the underlying stock price. Your max profit is much lower as a bull put spread than a bull call spread, but it is less risky.
Some good explanations provided already, will just add on to shed more light.
Bull call spread - lower probability win rate since u only make money if stock price goes up. 1out of 3 possible scenarios. But higher profit potential. This is also a net debit spread so u come up with capital first. As an option buyer, time decay is also not on your side.
Bull put spread - you are the option seller so this is a credit spread. You collect prem upfront instead. Higher probability win rate since stock price can go either up /sideways and you win. 2 out of 3 possible scenarios. Lower profit potential but balanced with a higher probability win rate. As an option seller, time decay is on your side.
So depends on which is your preferred strategy.
You nailed it man these are getting me through my exam
Great Explanation, thanks a lot
Detailed and to the point explanation, So helpful.
The best explanation I've ever seen.
Few questions Mike:
1. Can I leave the spread to expire worthless without taking any steps? Will that affect my net credit?
2. I got a spread in my account now.
Stock price: 530
500 buy 8.10
510 sell 11.42
Ned credit of 332.
If I close my spread now it says cost of trade is $440. Which is a loss despite stock being above the strike prices
One of the best explanation video on Bull Put Spread! Thank you!!
Great video for beginners like me. I would love if you did an example of how to minimize loss. Thanks so much, keep it up :)
Thank you!
Like always a great lecture.
You're the best coach I've seen so far on UA-cam, really well explained, very easy to understand, thank you.
Quick question, if Max Profit > Max Loss in any credit strategy does that mean I'll still make the difference even with a loss on the trade？
Thanks from Indonesia Chris. Learning heaps from you!
Thank you for commenting/watching! I'm glad you're liking the vids!
-Chris
Chris - another great video. I'm curious how you're generating the spread price graph found @8:55? Did you design it or is it part of a trading system graph? Need a visual to show my options position's P/L. Thanks!
Excellent. love the content and the speed, at which it is delivered.
In example #1 where the bull put spread expires well above the either strike price. Is it safer to let both options expire for maximum profit or to sell just before closing for "near maximum profit"? I've heard the risk of allowing both to expire is that one leg might be assigned/excercised while the other one expires. And then you are holding a bunch assets you don't want, which may lose value by opening the next day.
Great stuff - would be great to have a P/L chart on the last couple FAQ's (showing where you end up with shares , where you end with fees )
Hi Chris at the end of the video, you said that if the stock price is below the short put's strike but above the long put's strike, will end up with purchasing 100 shares of stock (per put). Is it still going to happen even if I didn't have enough cash/net liquid to purchase the 100 shares? in other words, I get 100 shares of stock at Break Even?
Thank you 🙏🏼 for sharing your knowledge, I greatly appreciate it!
Of course! I'm glad you liked the video.
-Chris
Hey Chris, since Bull Call Spread and Bull Put Spread are both bullish strategies, how do we decided which one we should use? Thanks for all you do =D
Great video! How to choose between Long call spread vs Short put spread which are both bullish.
thank you for the great video. finally i understand it.
Thanks Chris for an insightful lesson. If both positions are in the money, should I exercise the long put or the broker will do it? Thanks.
I wouldn't do anything. If both options are ITM, check the extrinsic value that exists on the short put. If it's close to zero, you may get assigned. If you do get assigned, you'll have +100 shares and +1 long put from your spread. You could then sell the 100 shares and long put to close the position. Or, you could exercise the long put if it's deep ITM, but I would NOT exercise the long put if it has lots of extrinsic value because you'd be burning money unnecessarily.
Thank you for all your videos. Your explanation is so simple for beginners like me to follow. Can you please make a video on how to choose the right trades for bull put spread?
Do you a course on how to read the chart ? I mean I know it's impossible to know if the stock price is going up or down, but I know that if you know how to read the market, at least you would have an idea.
How do we choose the strike of the options we buy? Is it the dollar value of the spread we can afford to lose?
Very easy to understand, tks.
Chris thanks for the video. Question to you (this seemed to make sense when I thought about it). When selling a put spread, let's say early on (the first 5 days on 30 DTE) the spread loses most of it's value and you decide to buy back the short put. Would it make sense to keep the long put and not close this out? I would say in this case it's fair to assume the long put is not worth much anymore since it will be further out of the money. So by selling it, there wouldn't be much value here. In this scenario, you give yourself a chance to make money if the spread reverses course. What do you think?
Cheers for this, I've been looking for "what percentage of traders make money?" for a while now, and I think this has helped. Ever heard of - Consaac Dumbfounded Control - (do a google search ) ? It is a good exclusive guide for discovering how to master options trading without the normal expense. Ive heard some interesting things about it and my mate got amazing success with it.
Chris P, u suggested a good idea to leave the long put open. However the long put should have a low delta and the probability of it being ITM at /near expiration would be super low and it would expire worthless. Although the prem is small, and you're taking a punt here, if u had close it as well, u would have gotten something back since there is extrinsic value remaining. Just my humble opinion.
Do you have delta targets you typically aim for when selecting strike prices for your short put spreads?
the delta wouldnt matter in a put spread. for me...i like to use 15 dollar out of the money strike prices on SPY and QQQ for a 90% win rate. I make up the difference with more contract to collect more premiums. I also prefer 2 or 3 day exp dates to up that winning percentage
@@gruponemesis I’ve actually been doing something similar on spx lately
@@pandapopulation6281 so far ive only come close to losing my trade and that was 2 weeks ago in that glorius tech collapse. good thing i do extreme out of money spreads....saved my ass. i use about 30k every 3 days on spreads....nets me gorgius premiums. i also trade nake options on a daily basis as well
@@gruponemesis super cool ur awesome
@@gruponemesisyou millionaire now?
Excellent video! Question: Can I "roll" with this strategy to avoid losses and delay assignments?
Great video, so the Bull put spread is the same as a Long put vertical? Thank You
Would have been nice to have a brief explanation of managing a loss situation at, say, 2X premium, rather than only showing what happens when both strikes expire ITM and Max Loss occurs.
Are there any adjustments you would make for doing this weekly?
Great video: I have a question. If you are bullish on the stock wouldn’t it make more sense to buy the safety put contract at a further out time frame to give your underlying stock a chance to move back up instead of instantly selling out of the entire position and booking the loss straight away. If you are overall bullish on the stock wouldn’t this be a more optimal strategy. You’d make less because you’d pay higher premium for the “insurance” Or does this not work?
In the last FAQ what if u do not have enough $ to buy the 100 shares? Will the broker sell the shares automatically at the market price so u don't take ownership of the shares?
Could you show us an example with commission and interests (paid for shorting a put overnight)? And if possible to construct a probability density function of the stock using some model (knowing the stock price at t=0) and calculate the expectancy of the portfolio. Thank you very much and I appreciate your video.
Again, very helpful and excellent video! Thank you and more power to you!
Love the videos. I would remind your viewers to avoid (pin) risk by closing your position before exp. Ever get caught holding the bag
So you prefer put spreads of cash secured puts?
Is it possible to experience early assignment before day 38 once the short put becomes ITM?
One thing I do not fully understand: Can't an option be exercised any my sold option assigned at any time even prior to expiration? So if there was a stock that is $100 dollars and I do a 95/85 put spread, couldn't I be assigned the moment the stock price hits $94 for example and I'd end up with 100 shares @ $94 while my long put at $85 was still OTM? So I'd have to sell the 100 shares at market value, incuring a loss, or hold and see if I can sell my $85 put to cover some of the loss?
Super helpful! Thank you!
Best time todo? Up or down market? As notice put skew means buying otm put is expensive
Hi Chris, Your videos have been very helpful for a beginner such as myself...
However, Is there a couple pager/cliff notes (key points for each vertical trade type) that would have all Vertical Spread types details?
That was so helpful, thank you guys!
You're welcome! Thanks for watching.
Hi there, again great video. I personally just confused why would someone go for a P&L Ratio of less than 2:1 with such a strategy? You mentioned this strategy has a win-rate of above 50% which is nice, given that proper TA was done. However, why would someone risk 4K to make 1.8K? Yes, you did minimize your risk, however, there is still potential that you might get hit big time. Could you elaborate on that please?
What happens if the buyer of your sold put exercises his option? Does this trigger your bought option to automatically sell at ask price locking in the current loss?
You will buy 100 shares of stock at the short put's strike price. You'll still have the long put, so your downside risk is completely covered, but you'll still be able to lose the initial max loss potential of the spread. Getting assigned doesn't change your risk profile, it just changes the structure of your position.
Excellent presentation in the videos by the way.
So Bull Call Spreads are very similar to trading Forex but with max losses?
Chris you are an awesome i would like to learn in person any chances? 😊
love your videos, they are money! keep it up
so always close your spreads if in the money?
Thank you sir! Very good content
Is there any chance of doing actual live trades on a live feed on a paper platform. Like a webinar. I know you have done a lot of videos and I’m starting understand it but I’m lost on this one
Unless you have done live trading explaining exactly what happens on entry and exit of each option
Hi John,
That's a great idea and I think I'm going to do that for a video very soon, likely this weekend/next week. I'll do a live trade entry and exit with each of the four vertical spreads to show what it looks like when entering and exiting trades.
Anything in particular that you'd like to see?
-Chris
If your willing yes.... I’m look at all the strategies but also looking at making money on options that have 1-2 days left whether buying or selling
I’m paper trading now so I don’t make real mistakes.... I took a position of selling a put
Now the way I understood it was when your selling a put your wanting markets to go up
So I took it at $96 strike plus .09 on BMO transaction cost me .95
Stock did climb but I was still losing. Not quiet sure why
I’m also not good at explaining so sorry if it doesn’t make sense
John Klassen was a video made?
Great education lecture.
Very Good Content.
Thank You Very Much
Question.... What would happen if I opened a bull credit spread at a price currently above the underlying stocks share price?
Hypothetical Scenario:
Let's say stock ABC is currently trading at $1,500 a share. Let's say I'm bullish about the stock and expect it to rise $500 by the expiration date.
Lets say I sell the $2,000 strike (which is currently above the share price) and buy the $1,950 strike. The difference between the two is $50 (x100 = $5,000). Now let's say the credit I received for opening the spread is $4,500. Now let's say on expiration day, the stock closes at $1,900 per share. Does that mean I will only lose my collateral of $500?
Thanks.
great video;may be show strategy to exit the trade
Thanks, very nice explanation.
Thanks for watching!
Options is so underrated. Thank you for all these gold videos you've posted my friend (:
Best ever. Thanks
Hi, great channel. Just have a question, if both the puts are in the money and if I can sell the long put for less loss than max loss near expiry is it ok to let the short put be exercised? (this is etf option
so it can only be exercised at the expiry date). I don't mind having a position and will do the wheel strategy on the exercised 100 shares
Short put strike at $42 premium $4.15 and long put at 38 premium was at 2.64. I can sell the long put for say 3.30.
Wait, so you need to own a put previously so you can sell it right?
What if the spread buyer exercises his option at day 38 or are you dealing with the Options Clearing Center and they are not allowed to do any exercising?
what are the steps of exiting the Put Credit Spreads? TIA.
How to close bull put if stock decrease and buyer swll the stock ? And how to clisw buy put .? Waiting expired ? Thanks
do you always let these expire? or would you close out before expiration usually?
Amazing explanation
Your videos are by far the best I've found online. Now I have 2 questions
1. From the FAQ at the end of the video, if you are in a scenario of being assigned stock because the stock price fell between the long and short put strike prices at expiration are the 100 shares of stock you are assigned purchased at the Short put strike price because it was in the money?
2. If someone purchases several spreads and falls under the scenario above and doesn't have the money to purchase the 100 shares per spread what does the broker do?
Thanks!
1) Yes. Whenever your short put goes ITM, you are subject to assignment. If assigned, you are obligated to buy 100 shares of the stock at the strike price of the short put. In order to initiate a put credit spread, a cash account must have enough unencumbered cash on hand to buy 100 shares of the stock at the strike price of the short put. If you have a margin account, the margin increases as the stock price gets closer to the short put's strike price. Your ROI from this strategy depends on how much cash you have to put up to initiate and maintain the position.
2) You won't be allowed to initiate a put credit spread without sufficient cash (for a cash account) or margin (for a margin accoun) on hand to buy 100 shares of the underlying stock at the strike price of the short put.
You close positions.
Is there a difference between a call debit and a put credit?
Your content is very well put together!!
Hey Chris good job once again!
I was Curious as to what happens when your BULL credit spread expired in the money?
Did you have to purchase the 100 shares at the put buy? Was any collateral held up?
If so how much.
You did an outstanding job explaining the spread Max profit and max loss.
Thank you, Isaac! I actually have a much better (hopefully) vertical spread guide coming out next week! Be sure to subscribe so you see that video when it's out.
If your spread expires FULLY in-the-money, both options will offset in terms of exercise/assignment and you won't end up with a stock position. You will end up with the maximum loss on the trade, and you'll also pay exercise/assignment fees. But I'd still recommend closing before expiration.
Whenever you are short a put and the stock goes below the strike price, you are at risk of being assigned a long position on 100 shares of the stock at the strike price.
The short put in a bull put spread is still considered a naked short put. In a cash account, you'll need sufficient cash in the account to buy 100 shares of the stock at the strike price of the short put. In a margin account, the margin increases as the stock gets closer to the strike price.
The videos that promote the credit spread strategy never talk about the downside of the strategy.
Note that if your P/L ratio is 1:1, you'll need to a 50% success rate to break even. If your P/L is 1/2, you'll need a 67% success rate to break even. One losing credit spread trade can erode the meager profits from successful credit spread trades.
@@herrickinman9303 Hi Herrick so what happen if the stock price is between short put strikes dan long put strikes BUT I don't have enough cash to buy 100 shares?
@@Tujuhub Per the terms of the put contract, if assigned, you are obligated to buy 100 shares at the strike price, even if you don't have enough cash in your account to complete the purchase. Upon assignment, the purchase price will be debited from your account and 100 shares will be credited. Your broker will sell the shares and/or other assets in your account to offset the debit. If there is still a debit balance, you will owe your broker. If you don't pay, you can be sued for damages and costs of collection, including legal fees and court costs. If you lied about your income or assets to induce the broker to let you trade, then 1) you can also be sued for civil fraud, 2) you can be charged will criminal fraud, and 3) you will not be allowed to discharge the debt in bankruptcy.
Hi Chris.I've been trading vertical put credit spreads and I want to track them on a spreadsheet. I created an Excel sheet that worked for a while but when the trade didn't work out I had to do rolls and in some cases I went into iron condors etc. My trading quickly outgrew my spreadsheet. Do you have any recommendations for a spreadsheet that will keep track of the profit and losses I am making on my trades?
Thanks Chris.
You're welcome!
Ty
yw
Valuable content 😊 keep it up
hi bro, very helpful explanation on how the trade works. if we on position of this bull spread, can we close sell & put on different days?
Vertical spreads must have same expiration dates
Hi Chris, upon expiration, is it possible to get assigned by the OCC if you are $0.01 positive on Buy Put leg of the spread? I am new to option!
thanks Chris; great video
Thank you! Great video...again :)
Let's say I am in a bull put spread. It's the expiry day, what happens if the stock price is below the break even line but above the long put strike price. If the short put is assigned and I don't have sufficient funds to buy 100 shares and my long put expires worthless, what would happen?
Hi I have exactly the same question in mind. Have you found the answer? Thank you!
This requires margin.
A) understanding this scenario is critical, if you are bullish on the stock you are using a PUT spread meaning you are choosing SP UNDER the Stock price not Over! As to the actual Strike prices themselves you will not be allowed to choose a price that you can't buy the stock if assigned so either you need enough margin or cash already in the account to cover the scenario. From a practical point, you want a way to stay aware of your trade until you close it to avoid actually hitting that floor..
When selling puts there are collateral requirements right? So wouldn’t I have to have $9000 if the price of the strike was $90?
Yes. If you shorted a $90-strike put then you'd need the cash to be able to buy 100 shares at $90/share if you aren't using a margin account. The premium from the put would reduce that amount but it would still be around the area of $9,000 in collateral in a cash account. Could be a few thousand in a margin account.
@@projectfinance ahh got it, thanks! I’ve got a smaller account so looks like I’m sticking with debit spreads 😂 thanks for the response!
@@abdulg4762 If you are selling put spreads (bull put spread) then you don't need to put the full $9,000 for the short put. If you shorted the 90/80 put spread then your max risk is $10 - credit received. So your margin would be less than $1,000 for the spread even though you have the short 90 put.
@@projectfinance ahh I see, but the expirations need to be the same correct? I usually sell diagonal spreads (PMCCs) with the back leg being multiple months out and weekly short legs. But I tried to sell weekly puts against a long put and it wouldn’t allow me
@@abdulg4762 Yes the expirations need to be the same.
@projectoption hey man, thanks for your work! question: in case a bull put spread gets exercised, the seller keeps the premium correct?
Man. I’m still confused on how you can start by selling a put first? Don’t you have to already own one or have the shares to cover it?
Common point of confusion! Nope, you can sell an option you don't own which is called 'shorting' the option.
On modern trading platforms, all you have to do is sell the option as an opening trade (you don't have a position in the option). If you short an option without buying another option (as in the bull put spread) you will need to put up the appropriate margin requirement to account for potential losses as shorting an option is a high-risk position.
Option contracts can be "created/destroyed" by two opposing parties making the opposite trades.
If I buy an option as an opening trade and somebody sells that option as an opening trade, we increase the number of contracts that exist. If I then sell my contract as a closing trade and somebody buys back their short as a closing trade, we reduce the number of contracts that exist.
This dynamic occurs in options and futures markets and is called open interest -- the number of contracts that are open between traders.
@@projectfinance really appreciate you taking the time to respond. I found your video to be the most helpful and informative. Thanks brotha!
Thanks
outstanding
Thank you!
Do you have to close both legs of the trade?..can you buy the short position back and leave the second position open til expiration?
You can close one part of the trade, but I wouldn't recommend it.
very detail explaination. Thank you
Glad it was helpful!
you are the best
Do you prefer put spread over call spread?
One is for bull market (put spread) other is Bear) call spread