Put credit spread option

Credit Spread Option

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Put option - Wikipedia

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Bull Put Spread - Fidelity

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No Free Money with Special Dividend Stock vs. BUY a PUT one or more strikes below 1 PUT in the same month, this provides the downside safety.

The maximum risk is the difference between the strike prices, less the net credit difference in premiums. The bull put spreads strategy is a BULLISH strategy, the entire profit can be realized when the stock price is above the short option strike price at expiration without closing either PUT position. Partial profit may be realized if the stock price is higher than the break even at expiration, but the spread will need to be closed.

Losses are limited to the difference in strike prices, usually about 5 points minus the net credit.

Short Put Spread | Bull Put Spread - The Options Playbook

This bullish spread works out OK if there is a very large decline because the BOUGHT PUT gains in value same as loss on the SOLD PUT side. In the case of a decline, the investor can buy to close the short PUT position early and continue to profit from the long put as the underlying drops.

This is an option only strategy, no shares of stock are actually owned during this bullish spread. Were this to happen you could sell the shares at the market pricing, or use the long put to sell the shares at the long put strike price.

The credit you receive for the trade is generally much smaller than the max risk of the trade, therefore it is prudent to close the short option before the position is at max loss.

Many traders do this when the short option is near-the-money. If you have closed the short option half of the trade you may want to consider holding the long option to possibly profit from continued directional momentum in the underlying.

However, the danger of bull put spreads is that the underlying will correct and whipsaw in the other direction. If you are Bullish on the stock but prefer Debit spreads: For more information on the Parity Strategy to Bull-Put Credit spreads: Parity Trading - Option Spreads and Parity Option Trades Revisited.