A bull put spread is a way to earn from a market that you expect to hold up. You sell one put at a higher strike and buy one put at a lower strike, on the same underlying and expiry. You receive more for the sold put than you pay for the bought one, so the trade starts with money in your account: a credit spread.
You keep that credit if the price finishes above the sold strike at expiry. The bought put is protection: it caps the loss if the market falls sharply. Selling a put on its own carries a large risk; the spread turns it into a defined risk. The buyer vs seller guide explains why selling options feels so different from buying them.
How the payoff works
- Above the higher (sold) strike at expiry: both puts expire worthless. You keep the whole credit, the maximum profit.
- Between the strikes: the sold put is in the money. Your profit shrinks one point per point of fall, turning into a loss below the breakeven.
- Below the lower (bought) strike: the bought put offsets further losses. The loss is fixed at its maximum.
Net credit = premium of sold put − premium of bought put
Max loss = (higher strike − lower strike) − net credit · Breakeven = higher strike − net credit
A worked NIFTY example
NIFTY is at 25,000. You think it is unlikely to fall below 24,800 by expiry. You:
- Sell the 24,800 put for ₹70
- Buy the 24,600 put for ₹30
Net credit = 70 − 30 = ₹40, the maximum profit. Strike width = 200. Maximum loss = 200 − 40 = ₹160. Breakeven = 24,800 − 40 = 24,760.
| NIFTY at expiry | 24,800 put (sold) | 24,600 put | Profit or loss per unit |
|---|---|---|---|
| 25,200 | 0 | 0 | +40 |
| 25,000 | 0 | 0 | +40 |
| 24,800 | 0 | 0 | +40 |
| 24,760 | −40 | 0 | 0 |
| 24,700 | −100 | 0 | −60 |
| 24,600 | −200 | 0 | −160 |
| 24,300 | −500 | +300 | −160 |
The trade wins in three of the four ways NIFTY can go: up, flat or a small fall. But look at the sizes: it risks ₹160 to make ₹40. With a lot of 75 units (check the current lot size), that is ₹3,000 of profit against a possible ₹12,000 loss. One full loss wipes out four full wins, so the chance of winning must be high just to break even over many trades.
Live example: where to place the sold put
Sellers often look at open interest to find levels where many puts have been written, because those writers have a reason to defend them:
The strike with the most put open interest is read as a support zone. Placing the sold put at or below it is a common approach, though support can break and open interest can move during the day. The open interest support guide explains the reasoning and its limits.
The expected move gives a second check on distance:
A sold strike inside the expected range collects more premium but is more likely to be tested; one outside it collects less but is safer on an ordinary week.
Why time is on your side
Both puts lose time value every day, but the sold put, being closer to the price, holds more time value and so loses more. That net decay is your income. If NIFTY simply drifts sideways, the spread gets cheaper to buy back each day, and on expiry day it can lose most of its remaining value in a few hours. The theta guide shows why decay speeds up near expiry.
Volatility works the other way: if fear rises (India VIX jumps), the spread's value rises against you even before the price reaches your strike. Credit spreads usually do best when implied volatility is high at entry and then falls.
Win rate and payoff: doing the arithmetic
Credit spreads look attractive because they win often, so it is worth checking what "often" has to mean. In the example, each win makes ₹40 and each full loss costs ₹160. Over five trades, four full wins (₹160) and one full loss (−₹160) leave you at zero before charges. To come out ahead you need to win clearly more than four times in five, or to cut losing trades before they reach the full loss.
That is why experienced sellers care more about how they exit losing trades than about how often they win. A rule such as "close when the spread costs twice the credit" turns many full losses into partial ones, which changes the arithmetic far more than picking a slightly better strike.
Margin and capital
Because it includes a sold option, a bull put spread needs margin. The bought put reduces it sharply compared with a naked sold put, since the worst case is known. The capital tied up is roughly the maximum loss plus a buffer, depending on exchange rules and your broker. Check the current margin in your broker's calculator before trading. The return on margin can look attractive, but it is only earned if the trade does not hit its loss.
Managing the trade
- Take profit early: many sellers buy back the spread once most of the credit is earned, rather than holding to expiry for the last few rupees.
- Set a loss rule: for example, close if the spread is worth twice the credit received, or if NIFTY closes below the sold strike.
- Roll down and out: close and reopen at lower strikes in a later expiry. This often adds risk and time to a losing trade; use it with care.
- Stock options are physically settled: close stock spreads before expiry to avoid delivery.
The strategy builder shows the payoff and today's value, so you can plan these exits in advance.
Related strategies
The bearish mirror image is the bear call spread. Put a bull put spread and a bear call spread together and you have an iron condor, which profits if the price stays inside a range. A bull call spread has a similar payoff shape but is paid for up front instead.
Common mistakes
- Judging it by the win rate. A strategy that wins often but loses big can still lose money overall.
- Selling too close for a bigger credit. The extra premium usually comes with a much higher chance of loss.
- Holding through events. A gap down on results, policy or global news can jump straight past both strikes.
- Too many lots. Low margin makes it easy to oversize; size by the maximum loss, not by the margin.
- Forgetting charges. Fees take a bigger share of a small credit than of a large one.