Bull Put Spread Explained: Strategy, Profit & Loss, Real Scenarios, FAQs

Introduction

When you’re strongly bullish on the market, buying Call options is a natural choice—it offers unlimited upside with limited risk. If your view is still bullish but more moderate, and you prefer a risk-defined approach, the Bull Call Spread becomes a sensible alternative. However, both of these strategies require you to pay a net premium, which means the underlying must move decisively in your favor for the trade to be profitable.

But what if your outlook is moderately bullish, and you expect the market to remain above a certain support level, without necessarily making a sharp move up?

That’s where the Bull Put Spread comes in.

This is a credit spread strategy constructed using Put options. It involves selling a put at a higher strike price and simultaneously buying a put at a lower strike price, both with the same expiry. The position results in a net credit, which is your maximum profit. The strategy aims to benefit from time decay, elevated put premiums, and a stable or mildly bullish price action, all while keeping the downside risk limited

Key Takeaways

• Bull Put Spread Basics: Use two put options to create a net credit strategy suitable for neutral-to-bullish outlooks.
• Best-Use Scenario: Apply this when support zones are strong, bullish momentum is steady, or after a correction in an uptrend.
• Trade Setup & Payoff: Learn how to structure the trade, calculate max profit/loss, and determine breakeven.
• Strategy Pros & Risks: Understand how the Bull Put Spread compares with other bullish strategies like the Bull Call Spread.

What is a Bull Put Spread?

A Bull Put Spread (also known as a short put vertical spread) is an options trading strategy that consists of:

• Selling a put option at a higher strike price
• Buying a put option at a lower strike price

Both options:

• Must have the same underlying and expiry date
• Create a net credit, which represents the maximum profit
• Define a maximum loss, making this a risk-defined strategy

Traders use this strategy when they expect the underlying asset to stay above a certain level or rise slightly by expiry. It’s not a bet on a big uptrend, but rather on price stability or a gradual rise.

Ideal Scenarios for Using a Bull Put Spread

• Scenario 1: Support Zone Holding – The stock/index is approaching a known support level and showing signs of holding firm. Technical indicators suggest a bounce or sideways movement.
• Scenario 2: Mild Rebound After Pullback – The asset has corrected slightly and is now consolidating. You expect a rebound or range-bound action as the market stabilizes.
• Scenario 3: Trending Market With Shallow Dips – A broader bullish trend is intact, but you want to profit from minor pullbacks or consolidation phases without betting on aggressive upward movement.

How Does a Bull Put Spread Work?

Strategy Setup

• Sell Put Option – Strike just below the current market price
• Buy Put Option – Lower strike, same expiry

Key Calculations

• Net Premium Received = Premium from Sold Put − Premium Paid for Bought Put
• Maximum Profit = Net Premium Received
• Maximum Loss = (Difference in Strike Prices − Net Premium Received)
• Breakeven Point = Strike Price of Sold Put − Net Premium Received

Let’s assume Nifty is currently trading at 22,600, and we hold a moderately bullish view going into the monthly expiry on 30th April 2025. The 22,500 level is seen as strong support, and we don’t expect the index to fall below it.

Trade Setup (Monthly Options – Expiry 30 April 2025)

Lot Size: 75
Net Premium Received: 146 – 96 = 50
Total Premium Collected: 50 × 75 = ₹3,750

Breakeven Point

Breakeven Price = 22,500 – 50 = 22,450

Profit & Loss Scenarios:

Scenario 1: Nifty closes at 22,300 or below (Maximum Loss)

• 22,500 PE intrinsic value = 200
• 22,300 PE intrinsic value = 0 (ITM, but long leg covers loss beyond this point)
• Spread Value = 200
• Net Loss = 200 – 50 = 150
• Total Loss = 150 × 75 = ₹11,250

Scenario 2: Nifty closes at 22,400 (Partial Loss)

• 22,500 PE intrinsic value = 100
• 22,300 PE is still OTM
• Net Loss = 100 – 50 = 50
• Total Loss = 50 × 75 = ₹3,750

Scenario 3: Nifty closes at 22,450 (Breakeven Point)

• 22,500 PE intrinsic value = 50
• 22,300 PE is OTM
• Net P&L = ₹0 (Breakeven)

Scenario 4: Nifty closes at 22,500 or above (Maximum Profit)

• Both options expire worthless
• Retain full premium
• Total Profit = ₹3,750

Scenario 5: Nifty closes at 23,200 (Profit Still Capped)

• No additional gain beyond breakeven
• Profit remains capped at ₹3,750

Risk-Reward Ratio

• Maximum Profit: ₹3,750
• Maximum Loss: ₹11,250
• Risk-Reward Ratio = 11,250 : 3,750 = 3 : 1

This trade structure offers a higher probability of profit, especially when there’s strong conviction that the market will stay above the short put strike. However, keep in mind the risk is higher than the reward.

Profit & Loss Scenarios Summary Table

Advantages & Risks of a Bull Put Spread

Advantages of Bull Put Spread

• Defined Risk Exposure: Your maximum loss is known from the outset—limited to the difference between strike prices minus the net premium received. This gives you confidence and protection in case the market moves against your view.
• Upfront Premium Income (Net Credit): The strategy generates immediate income when initiated. By collecting a net premium, you benefit from a cash inflow at the start of the trade.
• Time Decay Works in Your Favor: Since both options lose value over time, theta decay benefits the seller. As long as the underlying stays above the short put strike, time erosion adds to your advantage each passing day.
• Lower Margin Requirement: Compared to naked put writing, the Bull Put Spread has a defined loss profile, which significantly reduces margin requirements, making it more accessible for smaller capital accounts.

 Risks of Bull Put Spread

• Capped Profit Potential: No matter how bullish the market turns, your maximum profit is limited to the net premium received. You won’t gain additional profit beyond that.
• Unfavorable Risk-Reward Ratio: The strategy often carries a higher potential loss relative to reward. While the probability of profit may be higher, poor strike selection can lead to an unfavorable risk-to-reward balance.
• Breakeven Must Hold: The strategy relies on the underlying staying above the breakeven point. Even a modest decline can push the position into loss territory if the short strike is breached.

Comparison: Bull Put Spread vs Bull Call Spread

Conclusion

The Bull Put Spread is a low-risk, high-probability strategy perfect for traders expecting the market to remain stable or slightly bullish. With limited loss and defined profit, it’s a strategic way to earn premium while maintaining control over downside exposure.

It’s especially useful around strong support zones or during periods of market consolidation when you’re confident that downside is limited. Like all options strategies, success comes from proper setup, timing, and disciplined risk management.

FAQs