← Strategy LabLesson 19 · 3:53
Bull put spread
Summary
Use a bull put spread when you expect XYZ to stay at $100 or rise and you want to be paid first. You sell the $100 put for $341 and buy the $95 put for $141, so you collect $200, which is the most you can make. The most you can lose is $300, at $95 or below, and you break even at $98.
Key terms
- bull put spread
- You sell a put and buy another put with a lower strike and the same expiry, collecting cash and betting 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.
- T plus zero line
- The blue line on the chart showing your result today, if you closed the trade right now.
- time value
- The rest of an option's price, paid for the chance things get better before the end, and gone by the last day.
- break-even
- The stock price on the last day where you neither make nor lose money: strike plus premium for a call, strike minus premium for a put.
Check yourself
Answer each question to see why the right answer is right.
1. How much cash do you collect when you open this bull put spread?
2. Where do you break even on the last day?
3. XYZ ends at $90 on the last day. What is your result?
4. XYZ sits at $100 and days pass with nothing else changing. What happens to your result?
5. What job does the $95 put you buy do?
Finished the video and the quiz? .