Bull Put Spread
The bull put credit spread is a bullish strategy with low risk and limited reward.
How it works: The investor is in a bullish position. Look for a stock that is at support and headed up.
You then A) sell the put option at the next out-of-the-money strike price and B) buy the put option at
the next strike price below that.
Example: You are bullish about a stock trading at $46. To enter the bull put spread, you A) sell the
$45 put at $7, and B) buy the $40 put at $3. Based on one contract, selling the put would bring in $700
in premium and buying the put would cost $300, leaving a $400 credit. In this case, if the stock stayed
in the same place or increased in value, your maximum profit would be $400.
If the stock price falls, your maximum loss would be $100. The $400 credit you received would offset
the $500 loss (the difference between the $45 and $40 strike prices) and limit your loss to $100.
The payoff: You are profitable if the stock goes up, stays at the same price, or goes up slightly.
The drawback: Even if the stock doubles in value, your profit is capped.
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