← IntermediateLesson 14 · 4:44
Bull put credit spread
Summary
You can build a bull put credit spread by selling a higher-strike put and buying a lower one, so you are paid up front for expecting XYZ not to fall. You can state what you collect, the bigger amount you can lose, where you break even and how time works for you, and you know the assignment risk between the strikes.
Key terms
- bull put credit spread
- Sell a higher-strike put and buy a lower-strike put with the same expiry, collecting cash, to profit if the stock does not fall.
- credit spread
- A spread that pays you to open it.
- margin
- Money your broker holds against what a sold position could lose.
- assignment
- When a buyer exercises and you, as the seller of that option, must deliver.
Check yourself
Answer each question to see why the right answer is right.
1. You sell the XYZ $100 put for $3.41 and buy the $95 put for $1.41. What do you collect, and what is the most you can lose?
2. XYZ stays at $100 until the last day. What is your result?
3. With XYZ stuck at $100, what does time do to this spread?
4. Compared with selling the $100 put alone, what does buying the $95 put do for you?
5. XYZ ends at $97, between the strikes. What can happen?
Finished the video and the quiz? .